UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
 
D.C.
 
20549
 
FORM
10-K
(Mark One)
☒
 
ANNUAL REPORT PURSUANT TO
 
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
December 26, 2020
30, 2023
☐
 
TRANSITION REPORT PURSUANT TO
 
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
 
1934
For the transition period from ____________ to ____________
Commission file number
0-27078
HENRY SCHEIN, INC
.INC.
(Exact name of registrant as specified in its charter)
Delaware
11-3136595
(State or other jurisdiction of
(I.R.S. Employer Identification No.)
incorporation or organization)
135 Duryea Road
Melville
,
New York
(Address of principal executive offices)
11747
(Zip Code)
 
(
631
)
843-5500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b)
 
of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $.01 per share
HSIC
The Nasdaq Global Select Market
Securities registered pursuant to Section
 
12(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 a
 
large accelerated filer, an
 
accelerated filer, a non-accelerated filer,
 
a smaller reporting company,
 
or an
emerging
 
growth
 
company.
 
See
 
the
 
definitions
 
of
 
“large
 
accelerated
 
filer,”
 
“accelerated
 
filer,”
 
“smaller
 
reporting
 
company,”
 
and
 
“emerging
 
growth
company” in Rule 12b-2
of the Exchange Act.
 
Large accelerated filer
:
 
☒
 
Accelerated filer:
 
Accelerated filer:
☐
 
Non-accelerated filer:
☐
Smaller reporting company:
☐
 
Emerging growth company:
 
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. YES:
☒
 
NO:If securities are registered pursuant to
Section 12(b) of the Act, indicate by
check mark whether the financial statements of
the registrant included in the
filing reflect the correction of an error to previously issued financial statements.
☐
Indicate
 
by
 
check
mark
whether
any
of
those
error
corrections
are
restatements
that
required
a
recovery
analysis
of
incentive-based
compensation
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 Exchange 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 June 27, 2020,July 1, 2023, was approximately $
7,932,914,00010,506,752,000
.
 
As of February 8, 2021,20, 2024, there were
142,464,090128,505,719
 
shares of registrant’s Common Stock, par value $.01 per share, outstanding.
Documents Incorporated by Reference:
Portions of the Registrant’s definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year
(December 26, 2020)30, 2023) are incorporated by reference in Part III hereof.
3
PART
 
I
ITEM 1.
 
Business
General
Henry Schein, Inc. is a solutions company for health care professionals powered
 
by a network of people and
technology. We
 
We believe we are the world’s largest
provider of health care products and services primarily to
office-
based dental and medical practitioners, as well as alternate sites of care.
 
Our philosophy is grounded in our
commitment to help customers operate a more efficient and successful business so
 
the practitioner can provide
better clinical care.
With more than 8891 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 million
 
million customers worldwide across
dental practices, and laboratories, and
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 York
 
and employ more than 19,000 people (of which approximately 9,800 are25,000 people.
Approximately 55% of our
workforce is based outsidein the United States)States and approximately 45% is based outside
of the United States.
We have
operations or affiliates in 3133 countries and territories.
 
territories, including the
United States, Australia, Austria, Belgium, Brazil, Canada, Chile, China,
the Czech Republic, France, Germany,
Hong Kong SAR, Ireland, Israel, Italy, Japan, Liechtenstein, Luxembourg, Malaysia, the Netherlands, New
Zealand, Poland, Portugal, Singapore, South Africa, Spain, Sweden, Switzerland,
Thailand, United Arab Emirates
and the United Kingdom.
ThisOur broad global footprint has evolved over time through our
organic success as well
as
through contribution from strategic acquisitions.
Our business extends far beyond our supply chain capabilities across
the globe. We provide a wide breadth
of products, value-added solutions and support to customers, including
consumables and equipment. Through
Henry Schein One, we offer dental practice management, patient engagement
and demand creation software
solutions. We also offer a broad range of financial services for our customers to help them operate and expand their
business operations. We believe our hands-on consultative approach to support practice decision-making is a key
differentiator for our business.
We offer
stock a comprehensive selection of more than 120,000300,000 branded products
and Henry Schein privatecorporate brand
products in stock, as well as more than 180,000 additional productsthrough our main distribution centers.
 
available as special-order items.
As the market continues to evolve toward solutions that offer ease and convenience for
ordering products and
communicating with our solutions teams, we are investing in digital enhancements
to our e-commerce platforms
and our web capabilities.
We have establishedOur infrastructure, including over 3.55.3 million square feet of space
in 2836 strategically located distribution centersand 22 manufacturing facilities around
the
world, to enableenables us to historically
provide rapid and accurate order fulfillment, better serve our customers and
increase our operating
efficiency.
Our infrastructure allows us
to provide rapid and accurate order fulfillment. Historically, approximately 99% of items have been shipped
without back ordering and were shipped on the same business day the order
is received.
Due to the significant
increase in demand for personal protective equipment (“PPE”), as a result
of the COVID-19 pandemic, during the
year ended December 26, 2020, approximately 93% of items ordered
were shipped without back ordering and 90%
were shipped on the same business day the order was received.
As the demand for PPE stabilizes, we expect our
percentage of items shipped without back ordering and shipped on the
same day to return to historic levels.
 
This
infrastructure, together with broad product and service offerings at competitive
 
prices, and a strong commitment to
customer service, enables us to be a single source of supply for our customers’
 
needs.
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, government
and other
institutions.
Our medical businesses serve physician offices, urgent care centers, ambulatory care sites,
emergency
medical technicians, dialysis centers, home health, federal and state governments
and large enterprises, such as
group practices and integrated delivery networks, among other providers
across a wide range of specialties.
The health care distribution reportable segment, aggregatescombining our global dental
 
dental and medical operating segments.
Thissegments,
combined dental and medical segment distributes consumable products,
small equipment, laboratory products, large
equipment, equipment
repair services,
branded and generic pharmaceuticals,
vaccines, surgical products, diagnostic
dental specialty
 
products (including implant,
4
orthodontic and endodontic products), diagnostic tests, infection-control products,
 
personal protective equipment
products (“PPE”) and vitamins.
Our global dental group serves office-based dental practitioners,
dental laboratories, schools, government and other institutions.
Our global medical group serves physician offices,
urgent care centers, ambulatory care sites, emergency medical technicians, dialysis centers, home health,
federal
and state governments and large enterprises, such as group practices and integrated
delivery networks, among other
providers across a wide range of specialties.
 
While our primary go-to-market strategy is in our capacity as a
distributor, we also
market and sell under our own corporate brand portfolio of cost-effective, high-quality consumable
merchandise
products, and manufacture certain dental specialty products in the areas of oral
surgery, implants, orthodontics
and
endodontics. We have achieved scale in these global businesses primarily through acquisitions as manufacturers of
these products typically do not utilize a distribution channel to serve customers.
As an alternative to branded product options, we also market under our own
private label portfolio of cost-effective,
high-quality consumable merchandise products for our dental and medical customers.
Sales of our private label
products generally achieve gross profit margins that are higher than the average margin on the other
products we
sell.
 
 
Our globalThe technology and value-added services groupreportable segment provides software,
 
software, technology and other value-added
services to health care practitioners.
 
Henry Schein One, the largest contributor of sales to this category, offers
software systemsdental practice management solutions for dental and medical practitioners. This segment also includes a
 
small medical software business known as
MicroMD. In addition, we offer dentists and
physicians a broad suite of electronic health records, patient communication
 
integrated revenue cycleservices including electronic marketing
management,and website design, analytics and patient communication services. Finally, ourdemand generation.
Our value-added practice solutions include financialpractice
consultancy, education, integrated revenue cycle management and the facilitation of financial service offerings which include practice finance solutions such as credit card billing
and facilitation of customer(on
loans (on a non-recourse basis) to acquire equipmenthelp dentists and physicians operate and expand
their 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 broker dentalsupport practice decision-
transitions. We do not take on the liabilitymaking is a key differentiator for our business.
loans between practice customers and third-party banking groups.
4
Recent Developments
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent
Developments” herein for a discussion related to the COVID-19
pandemic and recent corporate transactions.
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 of
 
relatively small offices to mid-sized and large
group practices ranging in size from a few practitioners to several hundred
 
hundred practices owned or operated by dental
support organizations (DSOs)(“DSOs”), medical group purchasing organizations (“GPOs”), hospital
systems or integrated
delivery networks
(IDNs).
networks.
Due in part to the inabilitylimited capacity of office-based health care practitioners
to store and manage
large quantities of supplies
supplies in their offices, the distribution of health care supplies and small equipment
to office-based health
care practitioners
practitioners has been characterized by frequent, small quantity orders,
and a need for
rapid, reliable and
substantially complete
order fulfillment.
 
The purchasing decisions within an office-based health care practice are typically
 
are
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 due
 
to 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 access
 
to care globally, the proliferation of
medical technology and testing, new pharmacology treatments and
 
expanded third-party insurance coverage,
partially offset by the effects of unemployment on insurance coverage and technological improvements,
 
improvements, 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 diagnostic
 
testing 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, seeking
 
to combine with larger companies that can
provide growth opportunities.
 
This consolidation also may continue to result in distributors seeking
 
to acquire
5
companies that can enhance their current product and service offerings or provide
 
opportunities to serve a broader
customer base.
 
In addition, customer consolidation will likely lead to multiple locations
 
under common management and the
movement of more procedures from the hospital setting to the physician
 
or 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 HMOs,health
maintenance organizations (“HMOs”), group practices, other managed care accounts
and collective buying groups,
groups, which, in addition to their emphasis on
obtaining products at competitive
prices, tend to favor distributors capable
of providing specialized management
information support.
 
We believe that the trend towards cost containment has
the potential to favorably affect
demand for technology solutions, including software,
which can enhance the
the efficiency and facilitation of practice
management.
Competition
 
The distribution and manufacture of health care supplies and equipment is
 
highly 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 and
that of other distributors.
 
distributors. In certain parts of the
dental end market, such as those related to dental specialty products, and
 
medical end market manufacturers already
sell directly to end
customers.
In North America, we compete with other distributors, as well as several
 
manufacturers, of dental and medical
products, primarily on the basis of price, breadth of product line, e-commerce
 
capabilities, 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 Supply
 
Company.
 
In addition, we compete against
a number of other distributors that operate on a national, regional and
 
local level.
Our primary competitors in the
U.S. medical market, which accounts for the large majority of our global medical
 
sales, 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 that
 
sell directly to physicians.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 Dental
Software, Inc., PlanetDDS LLC,
LLC, Good Methods Global Inc.
(d.b.a. (d.b.a. CareStack) and Curve Dental, LLC.
 
In other software end markets, including
revenue cycle
management,
patient relationship management and patient
demand generation, we
compete with
companies such as Vyne
Therapeutics Inc., EDI-Health Group, Inc. (d.b.a. Dental X Change, Inc.),
Weave Communications,
Communications, Inc., Solutionreach, Inc., ZocDoc, Inc., LocalMed Inc. and PrositesSolutionreach, Inc.
 
The medical practice management and
electronic medical
records
market is very fragmented and we compete with
numerous companies such
as 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 supplies
 
and 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 against
 
several large competitors, including the
GACD Group, Proclinic SA, Lifco AB, Planmeca Oy and Billericay Dental
 
Supply Co. Ltd., as well as a large
number of other dental and medical product distributors and manufacturers
 
in international countries and territories
we serve.
Competitive Strengths
We have more than 8891 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 we
 
serve and reflect the technology-driven
products and services best suited for their practice needs.
We are committed to continuing to enhance these
6
offerings through organic investment in our products and our teams, as well as through asthe acquisition
 
the acquisition of 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 exclusive
 
distribution 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.
 
We have over 3,450Our field sales consultants, including equipment sales specialists, covering
major
covering major North American, European and other international
markets.
 
These consultants complement
our direct
marketing and telesales efforts and enable us to better market, service and support
 
and support the sale of more
more sophisticated products and equipment.
•
 
Marketing.
 
During 2020, we marketedWe market to existing and prospective office-based health care
providers
through a
combination of owned, earned and paid digital channels, tradeshows, as well
 
as through catalogs, flyers,
direct mail and other promotional materials.
 
Our strategies includedinclude 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 approximately 2,250 inbound and outbound
telesales representatives,
who facilitate order processing, generate new
sales through direct and frequent
contact 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 products
 
they need and to enable an engaging
purchase experience, supported by excellent customer service.
 
•
 
Social media.
 
Our operating entities and employees engage our customers and
 
supplier partners through
various social media platforms, which are an important element of our
 
communications 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 specialized
 
audiences.
Broad product and service offerings at competitive prices.
 
We offer
 
a broad range of products and services to our
customers, at competitive prices, in the following categories:
 
•
 
Consumable supplies and equipment.equipment
.
 
We offer over 120,000 Stock Keeping Units, or SKUs, to ourdistribute consumable products, small equipment, laboratory
customers.products, large equipment, equipment repair services, branded and generic pharmaceuticals,
vaccines, dental
specialty products, diagnostic tests, infection-control products and vitamins.
 
We offer over 180,000 additional SKUs tostock a comprehensive
selection of more than 300,000 branded products and Henry Schein
corporate brand products through our customers
main distribution centers.
We also market and sell our own corporate brand portfolio of cost-effective, high-
quality consumable merchandise products and manufacture certain
dental specialty products in the formareas of special order items.
implants, orthodontics and endodontics.
•
 
Technology and other value-added products and services.
 
We sell practice management, patientbusiness
analytics, patient engagement and patient demand creation software solutions
to our
dental customers.
 
Our practice
practice management solutions provide practitioners with electronic
 
medical records, patient treatment history,
history, analytics, billing, accounts receivable analyses and management, appointment
calendars, electronic
claims processing
and word processing programs, network and hardware
services, e-commerce and
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
electronic health records (“EHR”) and e-Prescribe medications and prescription solutions
 
through MicroMD®.solutions.
 
We have
have approximately 800 technical representatives supporting customers
using our practice management
solutions and services.
 
As
of December 26, 2020,30, 2023, we had an active user base of approximately
94,500
110,000 practices and 374,000 350,000
consumers, including users of AxiUm, Dentally®, Dentrix
Ascend®, Dental
Vision®, Dentrix® Dental
Systems, Dentrix® Enterprise, Easy Dental®, EndoVision®, Evolution® and
EXACT®, Gesden®, Jarvis
Analytics™, Julie® Software, Oasis, OMSVision®,
Orisline®, PerioVision®PBS Endo®,
 
PerioVision®, Power Practice®
Practice® Px, PowerDent,
 
and Viive®
and subscriptions for Demandforce®, Sesame, and Lighthouse360®
for dental
practices and DentalPlans.com®
for dental patients; and MicroMD® for physician practices.
7
patients.
•
 
Repair services.
 
We have over 140 119
equipment sales and service centers worldwide that provide
a variety of
repair, installation and technical services for our health care customers.
 
Our over 2,000 technicians provide
installation and repair services for:for dental handpieces; handpieces,
dental and
medical small equipment; table topequipment,
table-top
sterilizers;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 products
 
provided by third party vendorssuppliers (including
non-recourse financing for equipment, technology and software
 
products;products, non-recourse patient financing;practice financing
collection servicesfor leasehold improvements, business debt consolidation and commercial
real estate, non-recourse patient
financing and credit card processing) at rates that we believe are generally
 
lower than what our customers
customers would be able to secure independently.
 
We also provide consultingstaffing 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 128,000141,000 cartons daily.
 
Historically,
approximately 99% of items have been shipped without back ordering and
 
were shipped on the same
business day the order is received.
 
Due to the significant increase in demand for PPE, as a result
 
of
COVID-19, during the year ended December 26, 2020, approximately
 
93%
without back ordering and 90% were shipped on the same business day
the order was received.
As the
demand for PPE stabilizes, we expect our percentage of items shipped without
back ordering and shipped
on the same day to return to historical levels.
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
.
 
OurCertain of our information systems generally allow for centralized management
management of key functions, including accounts receivable, inventory, accounts payable, payroll, purchasing, sales,
order
sales, order fulfillment and financial and operational reporting.
 
These systems allow us to manage our growth,
deliver superior
customer service, properly target customers, manage financial
performance 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 the
 
lowest possible cost.
 
In 2020,2023,
our top 10 health care distribution suppliers and our single largest supplier accounted for approximately
 
30%24% and
4%, respectively, of our aggregate purchases.
Efficient distribution
.
 
We distribute our products from our 36 strategically located distribution centers.
 
We strive to
to maintain optimal inventory levels in order to satisfy customer demand
 
for prompt delivery and complete order
fulfillment.
 
These inventory levels are managed on a daily basis with
 
the aid of our management information
systems.
 
Once an order is entered, it is electronically transmitted to the distribution
 
center nearest the customer’s
location for order fulfillment.
8
Products
and Services
The following table sets forth the percentage of consolidated net sales
 
by principal categories of products offeredand
services offered through our health care distribution and technology and value-added services
reportable segments:
December 30,
December 26,31,
December 28,25,
December 29,2023
20202022
2019
20182021
Health care distribution:
Dental products
(1)
58.461.1
%
64.259.1
%
67.460.8
%
Medical products
(2)
35.832.4
29.835.2
28.334.0
Total
 
health care distribution
 
94.293.5
94.094.3
95.794.8
Technology
 
and value-added services:
Software and related products and
 
other value-added products
(3)
5.16.5
5.7
5.2
4.3
Total
excluding Corporate TSA revenues
99.3
99.2
100.0
Corporate TSA revenues
(4)
0.7
0.8
-
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, personal protectivePPE products,
equipment, 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,
products, equipment, personal protective 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
and financial services on a non-recourse basis, e-services, continuing education services for practitioners, consulting and other services.
(4)
Corporate TSA revenues represents sales of certain products to Covetrus under the transition services agreement entered into in
connection with the Animal Health spin-off, which ended in December 2020.
services.
Business Strategy
Our objectivemission is to continue to expand as a global value-added provider
ofprovide innovative, integrated health care products and services
services; and to be trusted advisors and
office-based dentalconsultants to our customers - enabling them to deliver the best quality patient
care and medical practitioners by increasingenhance their practice
management efficiency and success.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, increased
efficiency,
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 Value
for our stakeholders
8
To accomplish this, we
will apply our competitive strengths in executing the following strategies:
•
 
Increase penetration of our existing customer base.
 
We have over 1one million customers worldwide and we
we intend to increase sales to our existing customer base and enhance
our position
as their primary supplier.
supplier.
We believe our offering of a broad range of products, services and support, including software solutions
solutions that can help drive improved workflow efficiency and patient communications for
 
for practices,
coupled with
our full-service value proposition, helps us to retain and grow
our 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 customer
 
database to focus our marketing efforts
in all of our operating segments.
 
In the dental business, we provide products and services to
 
independent
practices, mid-market groups, and large DSOs as well as community health centers
and government
sites of
care.
 
Leveraging our broad array of assets and capabilities, we offer solutions to address these
 
new
markets.
 
In the medical business, we have expanded to serve customers
 
located 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 practitioners
 
and 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 distribution
customers.
 
In the
medical business,
we have opportunities to expand our vaccine, injectables
and other pharmaceuticals
sales
to health care
practitioners, as well as cross-selling electronic health recordEHR systems and software
 
and software when we sell our
core products.
 
Our
strategy extends to providing health systems, integrated delivery networks
 
delivery networks and other
large group and multi-sitemulti-
site health care organizations, including physician clinics, these same value added
 
added
9
products and services.
 
As physicians and health systems closely align, we have increased
 
access to
opportunities for cross-marketingcross-
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 geographic
 
footprint (whether entering a
new country, such as emerging markets, or building scale where we have already invested in businesses),
and finally, those that enable us to access new products and technologies.
Markets Served
 
Demographic trends indicate that our markets are growing, as an
 
aging U.S. population is increasingly using health
care services.
 
Between 2020According to the U.S. Census Bureau’s International Database, between 2023 and 2030,2033, the 45 and
older population is expected
to grow by approximately 11%.
 
Between 20202023 and 2040,
2043, this age group is expected to
grow by approximately 22%21%.
 
This compares with expected
total U.S. population growth
rates of approximately 7%6%
between 20202023 and 20302033 and approximately 12%11% between
2020 2023 and 2040.2043.
 
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 allow
 
dentists 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.
We support our dental 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’s efficiency.
In the medical market, there continues to be a migration of procedures from
 
acute-care settings to physicians’
offices and home health settings,
a trend that we believe provides additional opportunities
for us.
 
There also is the
continuing use of vaccines, injectables and other pharmaceuticals in alternate-care
 
settings.
 
We believe we have
established a leading position as a vaccine supplier to the office-based physician
 
practitioner.
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’s
efficiency.
9
Additionally, we seek to expand our dental full-service model and our medical offerings in countries where
opportunities exist.
 
Through our “Schein Direct” program, we also have the
capability to provide door-to-door airWe do this through both direct sales and by partnering with local distribution and
package delivery to practitioners in over 190 countries around the world.
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 price
 
to decline.
Our business is subject to seasonal and other quarterly fluctuations.
 
RevenuesSales and profitability generally have been
higher in the third and fourth quarters due to the timing of sales of seasonal
 
products (including influenza vaccine,vaccine),
equipment and software products), purchasing patterns of office-based health care practitioners for certain products (including
 
equipment and
software) and year-end promotions.
promotions. RevenuesSales and profitability may also be impacted by
the timing of
certain annual
and biennial dental
tradeshows where equipment promotions are offered.
In addition, some dental practices delay
delay equipment purchases
in the U.S. until year-end due to tax incentives.
 
Revenues and profitability generally have been lower in the first
quarter, primarily due to increased sales in the prior two quarters.
We expect our historical seasonality of sales to
to continue in the foreseeable future.
10
Governmental Regulations
We
strive to be substantially compliant in all material respects with the applicable
laws, regulations and guidance described
below, and
believe we have effective compliance programs and other controls in place to ensure substantial
compliance.
 
compliance.
However, compliance is not guaranteed
either now or in the future, as certain laws, regulations and guidance
may
guidance may be subject to varying and evolving interpretations that could
affect our ability to comply, as well as
future changes,
additions and enforcement approaches, including in light of political changes.
 
For example, 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 authorized and encouraged a freeze on certain federalindicated that it will be
 
regulationsmore aggressive in its pursuit of alleged
violations of law, and has revoked certain guidance that would have been published butlimited governmental use of informal agency
are not yet effective, as well as a review of all federal regulations issued during President Trump’s administration.guidance to pursue potential violations, and has stated that it is more prepared
 
to 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 care
sector, particularly in areas of fraud and
abuse, anti-bribery and corruption, controlled substances handling,
medical device regulations and data privacy and
security standards.
Changes with respect to the applicable laws, regulations and guidance described below, as well as related administrative or judicial
belowinterpretations, may require us to update or
revise our operations, services,
marketing practices and compliance
programs
and controls, and may impose
additional and unforeseen costs
on 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,
 
exportation, marketing, and sale and
promotion of and third party
payment for, pharmaceuticals andand/or medical devices, and in this regard, we
are subject to extensive local, state,
federal and foreign governmental laws and regulations, including as applicable
 
to our wholesale distribution of
pharmaceuticals and medical devices, manufacturing activities, and as part of
our specialty home medical supply
businessbusinesses that distributesdistribute and
sells sell medical equipment and supplies directly
to patients.
 
The federal governmentFederal, state and statecertain
foreign governments have also
increased enforcement activity in the health care
sector, particularly in areas of fraud
and abuse, anti-bribery
and
corruption, anti-corruption, controlled substances prescribing, handling,
medical device regulation,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 of
burdensome and complex coding,
billing and record-keeping requirements in order to substantiate claims for
payment 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 far
 
thus far unsuccessful, to
seek repeal of the entire United States Patient Protection and Affordable Care Act,
 
as amended by the Health Care
and Education Reconciliation Act, each enacted in March 2010 as(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, handling
and disposal of hazardous or
potentially hazardous substances; “forever chemicals” such as per-and
polyfluoroalkyl substances; and safe
working conditions.
 
In addition, activities to
control medical costs, including laws and regulations lowering reimbursement
 
lowering
reimbursement rates for pharmaceuticals, medical
devices, medical supplies
and/or medical treatments or services,
are ongoing.
 
Many of theseThe Centers for Medicare & Medicaid Services (“CMS”) recently
released the 2024 durable medical
equipment, prosthetics, orthotics and supplies (“DMEPOS”) reimbursement
schedule, 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 during
the COVID-19 pandemic.
This
and other laws and regulations are subject to
change and their evolving implementation
may impact our operations
and our
financial performance.
Our businesses are also generally subject to numerous other laws and regulations that could
 
that could impact our financial performance,
performance, including securities, antitrust, consumer protection, anti-bribery
and anti-kickback, customer
interaction transparency, data privacy,
data security, government contracting and other laws and regulations.
Failurefailure to comply with lawsuch laws or regulations could have a material adverse
effect on our business.
Operating, Security and Licensure Standards
Certain of our businesses involve the distribution, importation, exportation,are subject to local, state and federal governmental
 
marketing
laws and saleregulations relating to the
distribution of and third party
payment for, pharmaceuticals and medical devices and in this regard we are subject to various local,
state, federal
and foreign governmental laws and regulations, including as applicable
to our wholesale distribution and sale of
pharmaceuticals and medical devices, and, as part of our specialty home medical
supply business that distributes
and sells medical equipment and supplies directly to patients.supplies.
 
Among the United States federal laws applicable to
to us are the Controlled Substances Act, the Federal Food, Drug,
and Cosmetic
Act, as amended (“FDC Act”), and
Section 361 of the Public Health Service Act and Section 401 of the Consolidated
Appropriations Act of the Social
Security Act, as well as laws regulating the
billing of and reimbursement
from
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 states
 
may 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 communicable
 
diseases, serves as the legal basis for
11
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 significant
 
changes with respect to
pharmaceutical supply chain requirements.
 
Title II of this measure, known as the Drug Supply Chain Security Act
(“DSCSA”), is being phasedwas enacted in November 2013, and had a planned
“phase in” schedule over a period of ten years, and is intended
to buildresulting in a national electronic,
interoperable system to identify and trace
certain prescription drugs as they are
are distributed in the United States.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 partners
to provide, receive and maintain
documentation about products and ownership only “electronically”(and
not via paper) are now subject to a one-year
“stabilization period” announced by FDA through two guidance documents
in late August 2023.
FDA is permitting
the stabilization period to accommodate an additional year, until November 27, 2024, to allow trading partners
to
implement, troubleshoot and mature their electronic (versus paper), interoperable
systems, 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 into
commerce by the product’s
manufacturer or repackager before November 27, 2024, and for subsequent transactions
of such product through the
product’s expiry.
FDA states this stabilization period is intended to avoid disruption
to the supply chain, and
ensure continued patient access to drug products as trading partners
move towards full implementation of the
DSCSA’s
enhanced 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, continues
to be
implemented.
 
The DSCSA
DSCSA product tracing requirements replace the former FDA drug pedigree requirements
 
requirements and pre-empt certain state
state requirements that are inconsistent with, more stringent than, or
in addition
to, the DSCSA requirements.
The DSCSA also establishes certain requirements for the licensing and operation
 
of prescription drug wholesalers
and third-party logistics providers (“3PLs”), and includes the eventual
 
creation 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 reports
 
to the FDA, which include
information regarding each state where the wholesaler or 3PL is licensed, the name
 
name and address of each facility, and
contact information.
 
According to FDA guidance, states are pre-empted from imposing
 
any licensing requirements
that are inconsistent with, less stringent than, directly related to, or covered
 
by the standards established by federal
law in this area.
 
Current state licensing requirements concerning wholesalers will
 
remain 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, we
are 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 and
 
the Food and Drug Administration Safety and
Innovation Act of 2012 amended the FDC Act to require the FDA to promulgate
 
regulations to implement a unique
device identification (“UDI”) system.system for medical devices.
 
The UDI rule phased in the implementation of the UDI
regulations,
regulations, generally beginning with the highest-risk devices (i.e., Class
III medical devices)
and ending with the lowest-risk
lowest-risk devices.
 
Most compliance dates were reached as of September 24, 2018, with
 
with a final set of
requirements for low
risk devices being reached on September 24, 2022, which will complete
 
completed the phase in.
However,
in May 2021, the FDA issued an enforcement policy stating that
it does not intend to object to the use of legacy
identification numbers on device labels and packages for finished devices
manufactured and labeled prior to
September 24, 2023.
 
The UDI regulations require
“labelers” “labelers” to include unique device
identifiers (“UDIs”), with a
content
and format prescribed by the FDA and
issued under a system operated
by 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 devices
with UDIs.
 
The UDI regulations also
require labelers to submit certain information
concerning UDI-labeled devices
to the FDA, much of which
information is publicly
available on an FDA database, the Global Unique Device
Identification Database.
On July
22, 2022, the FDA posted the final guidance regarding the Global Unique Device
Identification Database called
Unique Device Identification Policy Regarding Compliance Dates for Class
I and Unclassified Devices, Direct
Marketing, and Global Unique Device Identification Database.Database Requirements
for Certain Devices.
 
The UDI
regulations and subsequent FDA guidance regarding
the UDI requirements provide
for certain exceptions,
alternatives and time extensions.
 
For example, the UDI
regulations include a general exception
for Class I devices
exempt from the Quality
System Regulation (other than record-keeping
record-keeping requirements 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 certain
of our businesses.
Under the Controlled Substances Act, asAs 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 Enforcement
 
Administration (“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-keeping
 
and 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
our businesses are also required to register for permits and/or licenses
with, and
comply with operating and security
standards of, the DEA, the FDA, the United States Department of Health
 
and 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 of
 
operations and location of product
distribution, manufacturing or sale.
 
These businesses include those that distribute, manufacture, relabel, and/or repackage
12
repackage prescription pharmaceuticals and/or medical devices and/or HCT/P
products, 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 certain human tissue (for example,organs, as defined in the regulations, for valuable
 
human bone products) for valuableconsideration,
consideration, while generally permitting payments for the reasonable costs incurred
 
incurred in procuring,their procurement, processing, storage and
storing and distributing that tissue.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, including
 
powers, including the ability
to suspend or limit the
distribution of products by our distribution centers,
seize or order the
recall 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
 
EUEuropean 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 and
may not include medical devices.
 
medical devices. EU “regulations”
“regulations” apply in all Member States,member states, whereas “directives” are implemented
by the
individual laws of member
states.
 
On medicines for humans, we are regulated under Directive No. 2001/83/EC
 
of 6 November 2001, as amended by
Directive 2003/63/EC of 25 June 2003, and EU
Regulation (EC) No. 726/2004
of 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, as
well as a national pharmacovigilance
system under which marketing
authorizations may be withdrawn, and includes
potential sanctions for breaches of
of the rules, and on other bases
such as harmfulness or inefficiency.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 normal
 
or 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 of
 
products, along with other sanctions.
 
In the European Union,EU, the EU Medical Device Regulation No. 2017/745 of 5 April 2017
 
(“EU MDR”) covers a wide scope of our
our activities, from dental material to X-ray machines, and certain software.
 
It was meant to become applicable three
three years after publication (in(i.e., May 26, 2020).
However, on April 23, 2020, to allow European Economic Area
(“EEA”)
national authorities, notified bodies, manufacturers and other actors
to focus
fully on urgent priorities
related to the
COVID-19 pandemic, the European Council and Parliament
adopted Regulation
2020/561,
postponing the date of
application of the EU MDR by one year (to May 2021).
 
In the meantime, rules provided for by Directive No.
90/385/EEC of 20 June 1990
on the approximation of the laws of the member states relating to active implantable
medical devices
remain applicable (in particular to certain software)May 26, 2021).
The EU MDR significantly modifies and intensifies the regulatory compliance
 
requirements for the medical device
industry as a whole.
 
Once applicable,Among other things, the EU MDR will among other things:MDR:
•
 
•
strengthens the rules on placing devices on the market and reinforces surveillance
 
once they are available;
•
 
Strengthen
establishes explicit provisions on manufacturers’ responsibilities
 
for the
rules
on
placing
devices
on
follow-up of the
market
and
rein
force
surveillance
once
they
are
available;
•
Establish
explicit
provisions
on
manufacturers’
responsibilities
for
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
 
Improve
the
traceability
of
medical
devices
throughout
the
supply
chain
to
the
end
-
user
end-user or
patient
through
a
unique identification number;
•
 
sets up a central database to provide patients, healthcare professionals and
 
Se
t
up
a
central
database
to
provide
patients,
healthcare
professionals
and
the
public
with
comprehensive
information on products available in the EU;
 
•
 
strengthens rules for the assessment of certain high-risk devices, such
 
Strengthen
rules
for
the
assessment
of
certain
high
-
risk
devices,
such
as
implants,
which
may
have
to
undergo an additional check by experts before they are placed on the market; and
•
 
Identifyidentifies importers and distributors and medical device products through
 
registration in a database
(EudaMedEUDAMED, which is not due until 2022fully functional for the time being and after).might
 
not be so before the end of 2027 at
the earliest; therefore, the use of this database is only possible through
 
a voluntary basis and, by a way of
13consequence, is currently not mandatory).
In particular, the EU MDR imposes stricterstrict requirements for the confirmation that a product meets
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.
 
Medical
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 of
1993
concerning medical devices
(“EU
Medical Device Directive”).
Subject to certain conditions, medical devices that (i) obtained a certificate
under the
EU Medical Device Directive mayfrom May 25, 2017, (ii) which was still 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
until 2024 (or until the expiry of their certificates, if applicable and earlier);December 31, 2027 for higher risk devices or December 31, 2028 for
 
however,medium and 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, importers and distributors
as of the application date.date (i.e., since
May 26, 2021).
Other EU regulations that may apply under appropriate circumstances
 
include EU Regulation No. 1907/2006 of 18
December 2006
concerning the Registration, Evaluation, Authorisation and
 
Restriction of Chemicals
, which
requires importers to register substances or mixtures that they import
 
in 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 (“CLP Regulation”)
(currently under revision), which sets various obligations with respect
 
to the labelling and packaging of
concerned substances and mixtures.
Furthermore, compliance with legal requirements has required and may in the future
 
require us to delay product
release, sale or distribution, or institute voluntary recalls of, or other corrective
action with respect to products we
sell,
each of which could result in
regulatory and enforcement actions, financial
losses and potential reputational
harm.
 
Our customers are also
subject to significant federal, state, local
and foreign governmental regulation, which
may affect our interactions
with customers, including the design and functionality
of 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 and
 
disposal of hazardous or potentially
hazardous substances, and safe working conditions.
 
In addition, certain of our businesses must operate in
compliance with a variety of burdensome and complex billing and record-keeping
 
record-keeping requirements in order to
substantiate claims for payment under federal, state and commercial healthcare
 
reimbursement programs.
Certain of our businesses also maintain contracts with governmental agencies
 
and 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 many
 
foreign countries have antitrust laws that
prohibit certain types of conduct deemed to be anti-competitive, as well as consumer
 
protection 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 government
 
agencies.
Violations of antitrust or
or consumer protection laws may result in various sanctions, including criminal
 
and civil penalties.
 
Private plaintiffs
plaintiffs may also bring civil lawsuits against us in the United States for alleged antitrust
 
antitrust law violations, including
claims for
treble damages.
 
EU law also regulates competition and provides for detailed rules protecting
 
protecting consumers.
The Biden Administration has indicated increased antitrust enforcement and
has been more aggressive in
enforcement activities, including investigation and challenging non-compete
restrictions 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 similar
 
foreign) 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 fraudulent
 
claims 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 referral
 
of a patient or ordering,
purchasing, leasing or arranging for, or recommending, ordering, purchasing or leasing of, items or services
 
that 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 which
the physician
(or (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 heightened
 
enforcement activity over the past few
years, and significant enforcement activity has been the result of “relators” who
 
serve as whistleblowers by filing
14
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 could result in significantsubstantial civil and criminal penalties and costs,under
 
including the federal False Claims Act, as well as
potential loss of licenses and the
ability to participate in federal and state
health care programs, and couldcriminal penalties,
or imposition of a corporate integrity agreement or corporate compliance
 
monitor 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 changes
in our operations or incur substantial defense
defense and settlement
expenses.
 
Even unsuccessful challenges by regulatory authorities or private
 
relators could result in reputational
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 addition
to 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 concerns
 
about
financial relationships between suppliers on the one hand and physicians,
 
dentists and dentistsother healthcare
professionals on the other.
 
As a result, we
regularly review and revise our marketing practices as necessary to facilitate
 
to
facilitate compliance.
We
We also are subject to certain United States and foreign laws and regulations
concerning the conduct of our foreign
operations, including the U.S. Foreign Corrupt Practices Act, the U.K. Bribery
 
Act, German anti-corruption laws
and other anti-bribery laws and laws pertaining to the accuracy of our internal
 
books 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 and
 
abuse laws and regulations, and
have adequate compliance programs and controls in place to ensure substantial
 
compliance, 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 failure
 
to comply with applicable law, could have
a material adverse effect on our business.
Affordable Care Act
The United States Patient Protection and Affordable Care Act as amended by the
Health Care and EducationOther Insurance Reform
Reconciliation Act, each enacted in March 2010, as amended (the “ACA”),
The ACA increased federal oversight of private
health insurance plans and
included 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 individuals
in the
United States with health
insurance.
 
The ACA has faced ongoingfrequent legal challenges, including litigation seeking
 
to invalidate and Congressional action
seeking to repeal some of or all of the law or the manner in which it has been
 
implemented.
In 2012, the United
States Supreme Court, in upholding the constitutionality of the
 
ACA 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, (the “Tax Act”), which contains a broad range of tax
reform provisions
that impact the individual and corporate tax rates, international tax provisions,
 
tax provisions, income tax add-
backadd-back provisions and
deductions, also effectively repealed the ACA’s
 
individual mandate by zeroing out the penalty
for non-compliance.
 
In the most recent
An ACA litigation,lawsuit decided by the federal Fifth Circuit Court
of Appeals found
the
individual mandate to be
15
unconstitutional, and returned the case to the District Court
for the Northern
District of
Texas for consideration of
whether the remainder of the ACA could survive the excision of the individual
mandate.
 
The Fifth Circuit’s
decision was appealed to the United States Supreme Court.
 
The Supreme Court heard
argument on the appeal on November 10, 2020, andissued a decision is anticipated soon.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 outcomeoutcomes of this casefuture cases that
changes change the ACA, in addition
to future legislation,
regulation, guidance
and/or Executive Orders that do the same,
could have a
significant impact on the U.S.
healthcare industry.
For instance, the American Rescue Plan Act of 2021 enhanced
premium 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 through
the end of 2022.
An ACA provision, generally referred to as the Physician PaymentPayments Sunshine
 
Act or Open Payments Program (the
“Sunshine Act”),
imposes annual reporting and disclosure requirements
for drug
and device manufacturers and
15
distributors with regard to payments or other transfers of value made to certain
 
covered recipients (including
physicians, dentists, teaching hospitals, physician assistants, nurse practitioners,
clinical nurse specialists, certified
registered nurse anesthetists, and teaching hospitals)certified nurse midwives), and for such
manufacturers and distributors
and for
group purchasing
organizations, with regard to certain ownership interests held by physicianscovered
recipients in the
reporting
entity.
 
The Centers for
Medicare and Medicaid Services (“CMS”)CMS publishes information from these
reports on a publicly available website,
including amounts
transferred and physician, dentist, and teaching hospital, and non-physician practitioner
 
identities.
 
Amendments expanded the
law to also require reporting, effective January
1, 2022, of payments or other transfers of value to physician
assistants, nurse practitioners, clinical nurse specialists, certified registered
nurse anesthetists, and certified nurse-
midwives, and this new requirement will be effective for data collected
beginning in calendar year 2021.
The
Sunshine Act
pre-empts similar state reporting laws, although we or our subsidiaries may
 
may be required to report
under certain state
transparency laws that address circumstances not covered by the Sunshine
 
the Sunshine Act, and some of
these state laws, as
well as the federal law, can be ambiguous.unclear.
 
We
are also subject to foreign regulations requiring
transparency of
certain
interactions between suppliers and their customers.
 
In the United States, government actions to seek to increase health-related price
 
price transparency may also affect our
business.
 
For example, hospitals are currently required to publish online a list of
their standard charges for all items
and services, including discounted cash prices and payer-specific and de-identified negotiated
charges, in a publicly
accessible online file.
Hospitals are also required to publish a consumer-friendly
list of standard charges for certain
“shoppable” services (i.e., services that can be scheduled by a patient in
advance) 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 and
other
providers, which may cause financial stress to those providers who
are dependent on higher out-of-network fees.
Another notable Medicare health care reform initiative, the Medicare Access
 
and 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 and
 
other practitioners.
 
Under MACRA,
certain eligible clinicians are required to participate in Medicare through the Merit-Based
 
Incentive Payment
System (“MIPS”) or Advanced Alternative Payment Models, (“APMs”), through which
 
which Medicare reimbursement to eligible
eligible clinicians includes both positive and negative payment adjustments that take
 
that take into account quality, promoting
promoting interoperability, cost and improvement
activities.
 
Data collected in the first MIPS performance year (2017)
(2017) determined payment adjustments that began January 1, 2019.
 
MACRA standards and payment levels continue to
evolve, and
represent reflect a fundamental change in physician reimbursement
that is expected
to provide substantial financial
financial incentives for physicians to participate in risk contracts, and to increase physician
 
physician information technology and
and reporting obligations.
 
The implications of the implementation of MACRA are uncertain and will
 
and will depend on future
future regulatory activity and physician activity in the marketplace.
 
New state-level payment and delivery system
reform programs,
including those modeled after such federal program,programs, are
also increasingly being
rolled out at the state level through
through Medicaid administrators, as well as through the private sector, which may further
alter the marketplace
and impact
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, the
 
President, 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 certain
price increases and to report information
relating to those price increases, while
others have taken legislative or administrative
action to establish
prescription
drug affordability boards or multi-
payermulti-payer purchasing pools to reduce the cost of
prescription 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) and
requires that manufacturers provide
CMS with pricing information for their Part B-covered drugs no later
than 30 days after the close of the previous
quarter.
Also at the federal level, several related bills have been
introduced and
regulations 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 distribution
 
industry 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 are
 
implemented 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 insurance
 
systems
).
 
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 authorized
 
medicines and their level
of reimbursement, or they may freeze prices, place controls on the profitability
 
of persons responsible for placing
medicinal products on the market, and include or exclude the medicine on
 
the list of products covered by national
health insurance systems.
 
16
EU law does not expressly include provisions like those of the Sunshine Act in
 
the United States, but a growing
number of EU member states (such as France since 2011)in 2011 and Italy in 2022) have enacted laws to increase the transparency
 
ofthe
transparency of relationships in the healthcare sector.
The scope of these laws varies from onone 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 of
 
computer 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 definition
 
to exclude certain software from
FDA regulation, including clinical decision support software that meets certain
 
criteria.
 
On September 27, 2019,
the FDA issued a suite of guidance documents on digital health products, whichdocument describing the impact the Cures Act
 
incorporated applicable Cures Act
standards, includingon existing software policies.
 
regarding the types of
Concurrently, FDA issued a draft guidance describing FDA’s
approach to clinical decision support toolssoftware.
On
September 28, 2022, FDA issued final guidance that made several changes
to the draft guidance and other software that areprovided a
more restrictive interpretation of exempt from
regulation by the FDA as medical devices, and continues to issue new guidance
in this area.clinical decision support software.
 
Certain of our
businesses involve the
development and sale 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 products is a
medical device, which could subject us or one
or more of our businesses to
substantial
additional requirements with
respect to these products.
In addition, our businesses that involve physician and dental practice management
 
products, and our specialty home
medical supply business, include electronic information technology systems
 
technology systems that 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 malicious
 
attack, which could require us to
expend significant resources to eliminate these problems and address related
 
security 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 and
 
regulations that protect the privacy and
security of personal information, such as the federal Health Insurance Portability
 
and Accountability Act of 1996,
as amended, and implementing regulations (“HIPAA”), the Controlling the Assault of Non-Solicited Pornography
and Marketing Act (“CAN-SPAM”), the Telephone Protection and Electronic
Consumer 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
becomes became effective on January 1, 2023.
Several other states have also passed
comprehensive privacy legislation, and several privacy bills have been proposed
both 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 that
is inconsistent from one jurisdiction to
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 patient
information, 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 European UnionEU adopted the pan-European
 
the pan-European General Data Protection
Protection Regulation (“GDPR”), effective from May 25, 2018, which increased privacy
 
privacy rights for individuals in(“Data
Europe (“Data Subjects”), including individuals who are our customers, suppliers and
 
and employees.
 
The GDPR
extended the scope
of responsibilities for data controllers and data processors, and generally
 
and generally imposes increased
requirements and
potential penalties on companies, such as us, that are either established
in the EU and process personal data of Data
Subjects (regardless the Data Subject location), or that are not established
in the EU but that offer goods or services
services to Data Subjects in the EU or
monitor their behavior (including by companies based outside of Europe).in the EU. Noncompliance
 
Noncompliance can result in penalties of
up to the
greater of EUR 20 million, or 4% of global company revenues and(sanction
 
that may be public), and Data Subjects
may seek damages. EU
memberMember states may individually impose additional requirements
and penalties regarding
certain limited matters (for which the GDPR let some room of flexibility),
 
regarding certain matters, such as
employee personal data.
 
With
respect to the personal data it protects, the GDPR requires, among other things,
companycontroller accountability, consents
from Data Subjects or otheranother acceptable legal basis to process the
personal data,
breach notifications 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, modification,rectification, erasure of the personal
data and transportingthe right to object to the processing.
On August 20, 2021, China promulgated the PRC Personal Information
Protection Law (“PIPL”), which took effect
on November 1, 2021.
The PIPL imposes specific rules for processing personal information
and it also specifies
that the law shall also apply to personal information activities carried
out outside China but for the purpose of
providing products or services to PRC citizens.
Any non-compliance with these laws and regulations may
subject
us to fines, orders to rectify or terminate any actions that are deemed
illegal 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.
 
17
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 regarding
regarding the collection, use and disclosure of certain
personal information
of California residents.
 
Compliance
with the new obligations imposed by the CCPA depends in
part on how particular regulators interpret and apply
them, and because the CCPA is relatively new, them.
 
and its implementing regulationsRegulations were released in August of
2020, but there
there remains some uncertainty about how the CCPA will be interpreted by the courts and enforced by the regulators.
If
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 may
negatively impact our
reputation, require
us to expend significant resources, and harm our business.
 
Furthermore, California voters
approved the CPRA on
November 3, 2020, which will amendamends and
expand expands the CCPA, including by providing
consumers with additional rights
with respect to their personal information,
and creating a new state agency, tothe California Privacy Protection
Agency, to enforce the CCPA
and the CPRA.
 
The CPRA will comecame into effect on January 1, 2023, applying to information
information collected by businesses on or after January 1, 2022.
 
OtherAs noted above, other states, as well as the federal government, have increasingly
 
considered the adoption of
similarly expansive
personal privacy laws, backed by significant
civil penalties for non-compliance.
 
While we
believe we have
substantially compliant programs and controls in place to comply with
 
with the GDPR, CCPA, PIPL,
CPRA and CPRAother state law requirements,
our compliance with these measuresdata privacy and
cybersecurity laws is likely to
impose additional costs on us,
and we cannot predict whether the
interpretations of the requirements, or changes in
our practices in response
to new requirements or interpretations of
the requirements,
 
requirements, could have a material adverse
effect on our business.
 
18
We
also sell products and services that health care providers, such as physicians
and 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 be
 
also be used as part of these customers’
comprehensive data security programs, including in connection with their efforts to comply with
 
applicable 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 comply
 
with applicable legal or contractual data
privacy and security requirements, may not only cause us significant reputational
 
harm, but may also lead to claims
against us by our customers and/or governmental agencies
and involve substantial
fines, penalties and other
liabilities and expenses and costs for remediation.
Various
 
federal initiatives involve the adoption and use by health care
 
providers of certain electronic health care
recordsEHR systems and
processes.
 
The
initiatives include, among others, programs that incentivize physicians
 
physicians and
dentists, through MIPS,
to use EHR technology in accordance with certain evolving requirements,
 
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 designated
 
capabilities designated in evolving
standards adopted by CMS and by 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 products
linked to government supported
incentive programs.
 
In order to maintain certification of our EHR
products, we
must satisfy these changing
governmental standards.
 
If any of our EHR systems do not meet these standards,
standards, yet have been relied upon by
health care providers to receive
federal incentive payments, we may be exposed
exposed to risk, such as under federal health
care fraud and abuse laws,
including the False Claims Act.
 
ForAdditionally, effective September 1, 2023, the Office of
example, on May 31, 2017, the U.S. Department of Justice announcedInspector General (“OIG”) for HHS issued a $155final rule implementing
 
million settlement and 5-yearcivil money penalties for information
corporate integrity agreement involving a vendor of certified EHR systems, based
on allegations thatblocking as established by the vendor, by
misrepresenting capabilities to the certifying body, caused its health care provider customers to submit false
Medicare and Medicaid claims for meaningful use incentive payments
in violation of the False ClaimsCures 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 products
may need
to incorporate increasingly complex
functionality, such as with respect to reporting functionality.and information blocking.
 
Although we believe we are positioned to accomplish this, the effort may involve
 
effort
may involve increased costs, and our failure to
implement product
modifications, or otherwise satisfy applicable standards,
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 electronic
 
transactions, such as transactions
involving claims submissions to third party payers.
 
Failure to abide by these and other electronic health data
18
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 exchanged
 
information becomes
increasingly important.
 
For example, on September 6, 2017, the FDA issued final
guidance to assist industry in
identifying specific considerations related to the ability of electronic medical
devices to safely and effectively
exchange and use exchanged information.
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 impacting
 
impacting health care.
E-Commerce
Electronic commerce solutions have become an integral part of traditional health
 
care supply and distribution
relationships.
 
Our distribution business is characterized by rapid technological
 
developments and intense
competition.
 
The continuing advancement of online commerce requires
 
us to cost-effectively adapt to changing
technologies, to enhance existing services and to develop and introduce a
 
variety of new services to address the
changing demands of consumers and our customers on a timely basis, particularly
 
in 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 recognition
and large customer base built
on solid customer relationships, position us well to participate in
 
this significant aspect of the distribution business.
 
19
We
continue to explore ways and means to improve and expand our Internet online
presence and capabilities, including our
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 to
 
abide 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 Practices
 
Act, the U.K. Bribery Act, German
anti-corruption laws and other anti-bribery laws and laws pertaining to
 
to the accuracy of our internal books and
records, as well as other types of foreign requirements similar to those
 
imposed in the United States.
While we believe that we are substantially compliant with the foregoing laws
 
and regulations promulgated
thereunder and
possess all material permits and licenses required for the conduct
 
of our business, there can be no
assurance that laws and regulations that impact our business or customers’ practiceslaws and
 
regulations 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 developments
 
that 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.
 
19
Employees and Human Capital
Henry Schein has a long, rich history of a purpose-driven model that engages
our 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 economic
success while also creating
shared value for society.
Through our strong values-based culture, our sustainability
approach and environmental,
social, and governance (“ESG”) efforts integrates our sense of purpose into the way we operate our
business 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 Compensation
Committee also playing a role
in ESG matters related to human capital engagement and executive
compensation, some key 2023 highlights related
to human capital matters include:
•
continuing to evaluate our pay equity analysis for the majority of
the 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 TSMs
on key D&I
topics; and
•
continuing to drive a culture of wellness and engagement for our TSMs by
fostering an environment
where they can feel engaged, included and psychologically safe.
At Henry Schein, our employees are our greatest asset.
 
We employ more than 19,000 full-time equivalent25,000 people, approximately 55%
employees, including approximately 2,250 telesales representatives, over
3,450 field sales consultants, including
equipment sales specialists, 2,000 installation and repair technicians, 3,550 warehouse
employees, 800 computer
programmers and technicians, 675 management employees and 6,300 office, clerical
and administrative employees.
Approximately 49% of our workforce is based in the United States and approximately 45%
 
approximately 51% is based outside of the
United States.
 
Approximately 13%14% of our employees are subject to collective bargaining agreements.
 
We believe
that our
relations with our employees are excellent.
We refer to our employees as Team
Schein Members, or “TSMs.”
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 to
our 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 their
fellow TSMs, our customers, supplier
partners, fellow TSMs, 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 program
that used
various vehicles, including The Pulse Global Culture Survey and TSM
roundtables, to garner feedback from our
TSMs on their employee experience.
The Pulse Global Culture Survey was redesigned in 2023 to measure
scores
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 intend
to stay, mainly driven by our values-based culture
and providing TSMs with a sense of purpose, a meaningful experience
and 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 Committee
and
Board, both of whom are committed to supportingaddressing the
personal and professional development of our TSMs, as well as providing competitive
benefits and a safe, inclusive
workplace, and believe that these measures help us to retain our TSMs
and attract new TSMs. identified opportunities.
 
As part of this commitment, some
commitment, we have, among other things:highlights in 2023 included:
•
Community
Developed a strong collaborative workplace culture.
: Provide opportunities for TSMs to have fun while contributing to an inclusive team
 
We believe our TSMs’ ability to effectivelythat respects
communicate and cooperate across functional and departmental teams positively
impacts our performance.
Each TSM’s performance is evaluated annually, based on a measure of Team Schein values, with a focus
on open communication.
Our team’s performance as a whole is evaluated via a culture survey, conducted
every two years, distributed to all TSMs, which, among other things,
addresses collaboration.
The results
from our culture surveys are reviewed by senior leaders, reported to the Board
of Directors and used to
implement programs and processes designed to further enhance our culture.
We are currently in the
process of further developing our collaborative culture by, among other things, strengthening our existing
commitment to diversity and inclusion, as further described below.supports one another.
•
Committed toContinued focus on creating a diverse and inclusive environment where TSMs
 
enhancefeel a sense of
belonging.
In 2023, Diversity and Inclusion, for the second time, was our
 
Diversity
and Inclusion
(“D&I”) initiatives.top strength identified in The
We
believe
a
diverse workforce
fosters innovation and cultivates an environment filled with unique
perspectives.
As a result, D&I helps us
meet the needs of customers around the world.
We collect feedback through hosting roundtables where our
senior
leaders
actively
listen
to
our
TSMs
on
topics
related
to
D&I,
and
the
insights
learned
are
used
to
guide
our
efforts
to
support
a
diverse
and
inclusive
environment.Pulse Global Culture Survey.
 
To
guide
our
efforts
and
education
related to
D&I, weour Diversity and
have established
anInclusion Council, with engagement from our Board and Executive
 
Diversity and
Inclusion Council
with engagement
from
our Board of Directors and Executive Management Committee. This
CouncilCommittee, drives the
Company’s overall
D&I strategy.
 
In 2020,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 launchedcascaded this goal down
 
ato our U.S. Managers.
We continue to
expand our D&I learning
program to educate our
journey, educating TSMs on criticalkey D&I topics.
 
D&I relatedWe understand the importance
of ensuring our internal team reflects the diversity of our customers and society
and continue to focus
on this through our talent planning, compensation and recruitment processes
in alignment with our
corporate strategic planning objectives to achieve concrete results.
We continue to publish our United
States Equal Employment Opportunity Commission (“EEOC”) EEO-1
data for the U.S.
•
Launched Henry Schein Games, a virtual platform with a field-day type event
at various locations that
brought TSMs together through friendly competition by earning
points for their team by engaging in
cultural-related activities and posting photos.
•
Launched Community Circles, which brought TSMs across the Company
together to connect about
topics, hobbies and management is incentivized to advance our D&I efforts.activities that they are passionate about.
•
Hosted Connection Days throughout the globe at Henry Schein facilities, which
 
Additionally, we promote engagementwere designed to boost
team morale by bringing TSMs together to participate in fun non-work-related
 
utilizingactivities at least once
per quarter.
•
Continued to expand our
Employee
Resource
Groups
as
(“ERGs”), an
 
inclusive
and
diverse
vehicle
for
all
TSMs
to
share,
TSMs to share, connect, learn and develop both personally and professionally.
 
We believe that these efforts will serve asEach of our ERGs has a
criticalsponsor from our Executive Management Committee and our Board.
 
stepping stone
as
we
continue to
strengthen our
D&I
initiativesOur CEO engages directly in
an
effort
to
meet
the
evolving
needsmany of our customers, supplier partners, TSMs, stockholders and society.
•
Committed to the professional development of our TSMs.
We have invested in education and skill building,
and provide formal and informal learning opportunities to our TSMs.
All TSMs globally are offered a
broad suite of talent and professional development training programs
targeted to specific learning
opportunities based on their current and potential future role within
the Company.
We also offer
over 50
organizational and development training courses designed to aid in the overall development
and
advancement of skills and competencies to enable organizational success.ERG programs.
 
•
Supported talent development and succession planning.
Launched an enhanced Onboarding Program that provides TSMs with
 
Talent planning efforts are an integral part of ourstrategic programming to help
commitment to ensure a strong leadership pipeline across the organization. We continuously identify a
group of potential management successors as part of our succession planningsuccessful start to their careers at Henry Schein.
 
process.To help ensure TSMs who are joining the
Company in a remote or hybrid working environment feel connected to
 
Our senior leadersour values-based culture, we
work to develop our TSMs’ talent and focus the team to execute ourlaunched a Culture Ambassador Program, which provides new hires with
 
long-terma 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 and
the communities in which we live and
work.
•
Continued to offer a variety of opportunities to volunteer for team-building and engaging
in 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 TSMs
to engage in meaningful
ways that connect back to their own personal purpose, such as helping
the community through
corporate social responsibility activities virtually or in-person.
•
Enhanced our strategic plans.partnerships with industry associations, customers
 
Our Boardand suppliers that
of Directors is provided with periodic updates regarding oursupport access to quality health care through various key programs and
 
talent developmentinitiatives (e.g., Gives Kids
A Smile, Alpha Omega-Henry Schein Cares Holocaust Survivors Oral
Health Program and succession planning
efforts, participates in professional development activities with our TSMs and receives
formal
documentation on these topics annually.
Release
 
21
20the Pressure).
•
Expanded our Steps for Suicide Prevention campaign, which brings TSMs
 
together to walk for a
Supported TSM healthcause and safety.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 focused
on how they may be
feeling that month.
 
We offer competitive healthalso launched an education program for managers of TSMs that provided
tactical examples of how to help reduce burnout amongst teams and wellness programssupport
the new way of
working.
•
Career:
Provide opportunities for TSMs to develop personally and other benefitsprofessionally with an emphasis on
embodying our values to
eligible TSMs.
In addition to employee health, we are committed to providing
a safe and secure work
environment for all TSMs.
In response to the COVID-19 pandemic, in March 2020, we implemented
certain policy and procedure changes in an effort to protect achieve our TSMs and customers,collective goals with excellence
 
and to supportintegrity.
appropriate health•
Continued investment in our employees by providing both formal and safety protocols.
 
Whileinformal learning
opportunities focused on growing and enhancing knowledge, skills and abilities
through a
broad suite of professional development training programs for current and
future roles.
In
2023, we saw an increase in participation in our workshops, with TSMs at
reporting a high
utilization of skills learned.
•
Continued expansion of our manufacturingformal mentorship and distribution facilities, ascoaching programs.
•
Continued roll-out of talent planning efforts designed to ensure a strong, diverse leadership
pipeline across the organization by strategically identifying and developing talent
through
targeted development opportunities and intentional succession plans.
Information derived from
talent planning efforts informs curriculum design and content to help focus on the
right
capabilities and help ensure alignment of career development efforts with the future
needs of
the organization.
Our Board is provided with periodic updates regarding our talent
and
succession planning efforts and participates in professional development activities
with our
TSMs.
•
Enhanced company-wide recognitions, including our Teddy Philson Team Schein Award,
which was redesigned in 2023 to provide more visibility and
meaningful recognition to TSMs
who exemplify our Team Schein Values,
as well as field sales consultants and equipmentother programs including service technicians, have
continued to work onsite or in theawards
field to provide vital services towhich highlight TSMs who exemplify our customers, most TSMs in administrative
functions have effectively
worked remotely since mid-March.
To support the health and safety of our TSMs, we, among other things,
implemented extensive cleaning and sanitation processes and face
mask policies to protect TSMs at our
manufacturing and distribution facilities, instituted social distancing
and face mask policies for our field
sales consultants and equipment service technicians and adopted broad work-from-home
initiatives for
TSMs in administrative functions. In connection with this shift to remote working,
we made investments in
equipment, technology, and security upgrades to help protect our information and enhance our team’s
ability to work remotely.
Additionally, to help the team manage stress during the pandemic, we, among
other things, established a “COVID-19 Resource Center” to provide a central
location for all
communications to support the health of TSMs and their families, and hold
virtual Global Town Halls for
all TSMs.
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, statements
 
of beneficial ownership of
securities on Forms 3, 4 and 5 and amendments to these reports and statements
 
filed or furnished pursuant to
Section 13(a) and Section 16 of the Securities Exchange Act of 1934
 
as soon as reasonably practicable after such
materials are electronically filed with, or furnished to, the United States Securities
 
Securities and Exchange Commission, or
SEC.
 
Our principal executive offices are located at 135 Duryea Road, Melville, New
 
York
 
11747, and our
telephone number is (631) 843-5500.
 
Unless the context specifically requires otherwise, the terms the
 
“Company,the “Company,”
“Henry Schein,” “we,” “us” and “our” mean Henry Schein, Inc., a Delaware
 
corporation, and its consolidated
subsidiaries.
 
 
 
 
 
 
 
2122
Information about our Executive Officers
The following table sets forth certain information regarding our executive
officers:
 
Name
Age
Position
Stanley M. Bergman
7174
Chairman, Chief Executive Officer, Director
Gerald A. Benjamin
68
Executive Vice President, Chief Administrative Officer, Director
James P.
 
Breslawski
6770
Vice Chairman, President, Director
Brad Connett
65
Chief Executive Officer, North America Distribution Group
Michael S. Ettinger
5962
Executive Vice President and Chief Operating Officer
Lorelei McGlynn
60
Senior Vice President, Corporate & Legal Affairs and Chief of Staff, SecretaryHuman Resources Officer
Mark E. Mlotek
6568
Executive Vice President, Chief Strategic Officer, Director
Steven Paladino
Walter Siegel
6364
ExecutiveSenior Vice President and Chief Legal Officer
Ronald N. South
62
Senior Vice President, Chief Financial Officer Director
Walter Siegel
61
Senior Vice President and General Counsel
Stanley M. Bergman
 
has been our Chairman and Chief Executive Officer since 1989 and a director
 
since 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.
 
Gerald A. Benjamin
has been our Executive Vice President and Chief Administrative Officer since 2000 and a
director since 1994.
Prior to holding his current position, Mr. Benjamin was Senior Vice President of
Administration and Customer Satisfaction since 1993.
Mr. Benjamin was Vice
President of Distribution
Operations from 1990 to 1992 and Director of Materials Management
from 1988 to 1990.
Before joining us in
1988, Mr. Benjamin was employed for 12 years at Estée Lauder, Inc., in various management positions where his
last position was Director of Materials Planning and Control.
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 Dental
 
Group 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 SeniorExecutive Vice President Corporate & Legal Affairs,and Chief of Staff and Secretary
Operating Officer since 2015.2022.
 
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 2000
and
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 from
 
1989
to 1994.
Steven Paladino
 
has been our Executive Vice President and Chief Financial Officer since 2000.
Prior to holding
his current position, Mr. Paladino was Senior Vice President and Chief Financial Officer from 1993 to 2000 and
has been a director since 1992.
From 1990 to 1992, Mr. Paladino served as Vice President and Treasurer and from
1987 to 1990 served as Corporate Controller.
Before joining us, Mr. Paladino was employed in public accounting
for seven years, most recently with the international accounting
firm of BDO USA, LLP.
Mr. Paladino is a
certified public accountant.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2223
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 since 2013.from 2013 until 2021.
 
Prior to joining us, Mr. Siegel
was employed
with Standard Microsystems Corporation, a publicly traded global
 
traded global semiconductor 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 President
and 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 at
PepsiCo, 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 Executive
 
Management:
 
Name
Age
Position
David BrousAndrea Albertini
5253
President, Strategic Business Units Group and
Asia Pacific & Brazil Dental
Brad Connett
62
President, U.S. MedicalChief Executive Officer, International Distribution Group
Jonathan Koch
Leigh Benowitz
4656
Senior Vice President and Chief ExecutiveGlobal Digital Transformation Officer Global Dental Group
Lorelei McGlynn
Trinh Clark
5750
Senior Vice President and Chief Human ResourcesGlobal Customer Experience Officer
James Mullins
5659
Senior Vice President, Global ServicesSupply Chain
Kelly Murphy
43
Senior Vice President and General Counsel
Christopher Pendergast
5861
Senior Vice President and Chief Technology Officer
Michael Racioppi
66
Senior Vice President, Chief Merchandising Officer
René Willi, Ph.D.
5356
President,Chief Executive Officer, Global Dental SurgicalOral Reconstruction Group
David BrousAndrea Albertini
 
has been our President, Strategic Business UnitsChief Executive Officer, International Distribution Group and Asiasince 2023.
 
Pacific & Brazil Dental since 2019.
Mr. Albertini
Mr. Brous joined us in 20022013 and has held manyseveral positions within the organization including leading
President, International
Distribution Group, President of our EMEA Dental Distribution Group,
and managingVice-President of International Dental
the Corporate Business DevelopmentEquipment.
Prior to joining Henry Schein, Mr. Albertini held leadership positions at Cefla Dental Group and the International Healthcare Group
(managing our International
Animal Health business, International Medical business and Australia
/ New Zealand Dental business).Castellini.
Brad Connett
has been our President of the U.S. Medical Group since 2018.
Mr. Connett joined us in 1997 and
has held a number of increasingly responsible positions 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.
Jonathan KochLeigh Benowitz
 
has been our Senior Vice President and Chief ExecutiveGlobal Digital Transformation Officer of oursince August
2022.
Ms. Benowitz joined us in 2017 and has held several key positions
including Vice President Digital &
Customer Experience and Global Dental Group since
2018.eCommerce Platform Digital Transformation Officer.
 
Prior to joining us, for the years 2006 to 2018, Mr. Koch was a senior executive at Covance,
the drugHenry
development services business of Laboratory Corporation of America.
In his last role at Covance, Mr. Koch was
the Executive Vice President and Group President of Covance Clinical Development & Commercialization
Services.
Prior to that, Mr. Koch was Executive Vice President and Group President of Covance Research and
Development Laboratories from 2015 to 2017.
Mr. Koch was also President of Covance Central Laboratory
Services from 2010 to 2015,
and Vice President at Covance, withSchein, Ms. Benowitz held various responsibilities, from 2006 to 2010.
Prior
to Covance, Mr. Koch held senior leadership rolespositions of increasing responsibility while employed with Charles River
Laboratories from 1998 to 2006.
 
at Citi.
Trinh Clark
Lorelei McGlynn
has been our Senior Vice President and Chief Global Human ResourcesCustomer Experience Officer since 2013.August
2022.
 
Since joining
Ms. Clark joined us in 1999, Ms. McGlynn2007 and has served as Vice President, Global Human Resources and Financial Operations fromTechnology Enablement, North American
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.Distribution Group.
 
Prior to joining us,Henry Schein, Ms. McGlynnClark held various positions of
increasing responsibility at
served as Assistant Vice President of Finance at Adecco Corporation.
eSurg.
James Mullins
 
has been our Senior Vice President of Global ServicesSupply Chain since 2018.
 
Mr. Mullins joined us in 1988
1988 and has held a number of key positions with increasing responsibility, including Global Chief Customer Service
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 within
the legal function, most recently serving
as Deputy General Counsel.
 
2324
Christopher Pendergast
 
has been our Senior Vice President and Chief Technology Officer since 2018.
 
Prior to
joining us, Mr. Pendergast was the 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 2000
 
and Rohm and Haas from 1994 to 1998.
Michael Racioppi
has been our Senior Vice President, Chief Merchandising Officer since 2008. Prior to holding
his current position, Mr. Racioppi was President of the Medical Division from 2000 to 2008 and Interim President
from 1999 to 2000, and Corporate Vice President from 1994 to 2008, with primary responsibility for the Medical
Group, Marketing and Merchandising departments.
Mr. Racioppi served as Senior Director, Corporate
Merchandising from 1992 to 1994.
Before joining us in 1992, Mr. Racioppi was employed by Ketchum
Distributors, Inc. as the Vice President of Purchasing and Marketing.
He currently serves on the board of National
Distribution and Contracting and previously served on the board of Health
Distribution Management Association
and Health Industry Distributors Association (HIDA).
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, Henry Schein Inc., since 2013.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 responsibility
 
in
Medtronic Plc’s cardiovascular
division from 2003
to 2005 and with McKinsey & Company as
a management
consultant from 2000 to 2003.
25
24
ITEM 1A. Risk Factors
Our business operations could be affected by factors that are not presently known
 
to us or that we currently
consider not to be material to our operations, so you should not consider
 
the 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, financial
 
results, financial condition and/or
the trading price of our common stock.
 
The order in which these factors appear does not necessarily reflect
 
their
relative importance or priority.
 
COMPANY RISKS
Our business, results of operations, cash flows, financial condition and
liquidity may be negatively impacted by
the effects of disease outbreaks, epidemics, pandemics, or similar wide-spread public
health concerns and other
natural disasters
.
The COVID-19 pandemic and the responses of governments
to it had, and may again have, a
material adverse effect on our business, results of operations and cash flows and may
result in a material
adverse effect on our financial condition and liquidity.
Our business, results of operations, cash flows, financial condition and
liquidity may be negatively impacted by the
effects of disease outbreaks, epidemics, pandemics, similar wide-spread public health concerns,
and other natural
disasters. The COVID-19 pandemic has had, and continues to have,
an unprecedented impact on society, worldwide
economic activity, and the health care sector (particularly, the dental market). As a global healthcare solutions
company, the COVID-19 pandemic and the governmental responses to it had, and may again have, a material
adverse effect on our business, results of operations and cash flows and may result in a
material adverse effect on
our financial condition and liquidity. In March and April 2020, the dental market was severely impacted by
COVID-19, with many, if not a majority, of practices being closed or open on a limited basis only. Although dental
practice openings and patient volume recovery in the United States and
many other countries have rebounded faster
than originally anticipated, patient volumes have remained below pre-COVID-19
levels.
Material uncertainty
remains and the potential for additional significant resurgences of COVID-19
could cause a significant reduction in
dental practice openings and patient volume recovery, or further delay the return to normal operations. Even
after
COVID-19 has subsided, we may again experience material adverse
impacts to our business, results of operations
and cash flows as a result of, among other things, its global economic
impact, including any recession that may
occur in the future, or a prolonged period of economic slowdown or the
reluctance of patients to return for elective
dental or medical care. The impacts and potential impacts from
the COVID-19 pandemic include, but are not
limited to:
•
Significant reductions in demand or significant volatility in demand for certain of our products.
For example, in
March and April 2020, many dental offices in the United States performed only emergency procedures,
and
rescheduled wellness exams and elective procedures. Dental offices in other countries
also experienced closures or
restricted operations, as did medical offices around the world. Such closures and restrictions
impacted our
customers’ spending with us and had, and if reinstated may again have, a material
adverse effect on our business,
results of operations and cash flows. Although dental practice openings and
patient volume recovery have
rebounded faster than originally anticipated, capacity constraints
in offices and demand-side factors may again lead
to reductions in demand or significant volatility in demand for our products. Additionally, significant reduction in
demand for certain of our products or customers’ decisions to delay
the purchase of large equipment may result in
us having increased inventory;
•
Shortage of Certain Personal Protective Equipment (PPE
). Supply chain disruptions for PPE and an increased
demand for these products has resulted, and may continue to result,
in backorders of certain PPE and a potential
scarcity in raw materials to make certain PPE. Prices for certain PPE have been
volatile. Although we believe that
most practices currently are able to access adequate supply, with some exceptions in certain markets depending on
a number of factors, including the progress of the virus and efforts to combat it, we
still may be unable to supply
our customers with the quantity of certain PPE products they demand,
which may lead to our customers seeking
alternative sources of supply. Furthermore, healthcare professionals’ inability to obtain a sufficient quantity of
certain PPE would
adversely impact our business, results of operations and cash flows,
and could materially
adversely affect our financial condition and liquidity. Conversely, we recorded significant charges throughout the
year beginning in the second quarter for PPE inventory due to volatility
of pricing for PPE, and, depending upon
25
the course of the pandemic, if PPE pricing or demand decreases, our
margins and the value of certain our PPE
inventory could be further negatively impacted in future periods, which
could result in a material adverse impact on
our business, results of operations and cash flows and our financial condition
and liquidity;
•
Reduction in Peoples’ Ability and Willingness to be in Public.
Restrictions recommended by several public health
organizations, and implemented by many local governments, to slow and limit the transmission
of COVID-19
(including business closures and restrictions, stay-at-home and similar measures)
were implemented and then lifted
or partially lifted in some locations and reinstituted in others. Ongoing
social distancing ordinances and similar
restrictions, and the actual and potential for additional resurgences of COVID-19
has in some locations and may in
other locations result in the re-imposition or tightening of governmental
social distancing and other restrictions,
and/or cause people to be less willing to go to elective medical and dental
appointments, which could again
materially adversely affect demand for our products. A lengthened period of materially
suppressed demand could
again cause material adverse impacts on our business, results of operations
and cash flows and could materially
adversely affect our financial condition and liquidity;
•
Potential delays in customer payments, or defaults on our customer credit arrangements.
We generally sell
products to customers with payment terms. If customers’ cash
flows or operating and financial performance
deteriorate due to the impact of COVID-19, or if they are unable to make scheduled
payments or obtain credit, they
may not be able to pay, or may delay payment to us. Likewise, for similar reasons, suppliers may restrict credit or
impose more stringent payment terms. The inability of current and/or
potential customers to pay us for our products
and/or services or any demands by suppliers for more stringent payment terms
may materially adversely affect our
business, results of operations, cash flows, financial condition and
liquidity and may limit the amounts we can
borrow under our trade accounts receivable securitization;
•
Impact on third parties’ ability to meet their obligations to us; impact on our ability to meet obligations
to third
parties.
Failure of third parties on which we rely, including our suppliers, contract manufacturers, distributors,
contractors (including third-party shippers), banks, joint venture partners
and external business partners, to meet
their obligations to us, or significant disruptions in their ability to do
so, which may be caused by their own
financial or operational difficulties, or by travel restrictions and border closures, may materially
adversely affect
our business, results of operations, cash flows, financial condition and
liquidity. Certain of our contracts with
supply partners contain minimum purchase requirements or include rebate provisions
if we satisfy certain sales or
purchasing targets that, in certain cases we have not been able to satisfy and in other
cases we may not be able to
fully satisfy, due to the impact of the COVID-19 pandemic. Rebate income recognized in fiscal 2020 is less than
rebates earned over the prior fiscal year. Our failure to satisfy such contractual provisions or renegotiate
more
favorable terms could materially adversely affect our business, results of operations
and cash flows;
•
Negative impact on our workforce and impact of adapted business practices.
The spread of COVID-19 caused us
to implement temporary cost reduction measures (including a payroll
cost reduction plan centered around
furloughs, reduced pay and work hours, voluntary unpaid time off, suspension of Company
contributions to certain
retirement plans and job reductions), all of which have now ended (except
for a small number of TSMs who remain
on furlough), modify our business practices (including employee
travel, employee work locations, and cancellation
of physical participation in meetings, events and conferences), and
we may take further actions as may be required
by government authorities or that we determine are in the best interests
of our employees. As the COVID-19
pandemic continues to unfold, we will continue to evaluate appropriate actions
for our business. Many of our
employees shifted abruptly to working remotely and our non-essential workers
who are able to work from home
continue to do so. An extended period of modified business practices
and remote work arrangements could have a
negative impact on employee morale, strain our business continuity plans,
introduce operational risk (including but
not limited to cybersecurity risks), and impair our ability to efficiently operate our
business;
•
Significant changes in political conditions.
Significant changes in political conditions in markets in which
we
purchase and distribute our products have occurred and are expected to
continue at least during the pendency of the
pandemic, including quarantines, governmental or regulatory actions, closures
or other restrictions that limit or
close our operating facilities, restrict our employees’ ability to
travel or perform necessary business functions, or
otherwise constrain the operations of our business partners, suppliers, or
customers, which may materially
adversely affect our business, results of operations, cash flows, financial condition
and liquidity;
26
•
Potential impact on our ability to meet obligations under credit facilities.
Although in fiscal 2020 we entered into
amendments to our material credit facilities to, among other things,
extend the maturity dates and temporarily
provide additional flexibility under certain covenants, an extended negative
impact of COVID-19 on our business,
results of operations, cash flows, financial condition and liquidity could
impact our ability to meet our obligations
under credit facilities or outstanding long term debt, which contain
maximum leverage ratios, and customary
representations, warranties and affirmative covenants;
•
Volatility
in the financial markets.
Volatility
in the financial markets may materially adversely affect the
availability and cost of credit to us;
•
Refocusing management resources to mitigate effects of COVID-19
. Our management is focused on mitigating the
effects of COVID-19, which has required, and may continue to require for the duration of
the pandemic, a large
investment of time and resources across the Company, and may delay certain strategic and other plans, which could
materially adversely affect our business;
•
Potential
increased costs associated with our self-insured medical insurance programs.
We may incur significant
employee health care costs under our self-insurance medical insurance programs
if a large number of our
employees and/or their covered family members become ill from COVID-19;
and
•
Reputational risk associated with response to COVID-19.
If we do not respond appropriately to the COVID-19
pandemic, or if customers do not perceive our response to be adequate, we could
suffer damage to our reputation
and our brands, which could materially adversely affect our business.
The impact of COVID-19 may also exacerbate other risks discussed below, any of which could have a material
adverse effect on us.
We are dependent upon third parties for the manufacture and supply of substantially alla significant volume of our products.
We obtain substantially alla significant volume of the products we distribute from third parties, with whom we generally do not have
have long-term contracts.
While there is typically more than one source of
supply, some key suppliers, in the aggregate,
aggregate, supply a significant portion of the products we sell.
 
In 2020,2023, our top 10 health care distribution suppliers and
our
and our single largest supplier accounted for approximately 30%
25% and 4%, respectively, of our aggregate purchases.
 
Because of our dependence upon such suppliers, our operations are
 
subject to the suppliers’ ability and willingness
to supply products in the quantities that we require, and the risks include delays
 
caused by interruption in
production based on conditions outside of our control, including
 
a supplier’s failure to comply with applicable
government requirements (which may result in product recalls and/or
 
cessation 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
and obtain acceptable replacement sources on a timely basis.
There is no guarantee
that we would be able to obtain such
such alternative sources of supply on a timely basis, if at all, and an extended interruption
 
interruption in supply, particularly of a
high salesa high-sales volume product, could result in a significant disruption in our sales
 
sales and operations, as well as damage to
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 because
of allegations of forced labor in their supply
chain.
Forced labor legislation affecting the supply chain has increased around
the 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 demand
for products, as a result of applicable forced labor
legislation and regulations.
Our
 
future
 
growth
 
(especially
 
for
 
our
 
technology
 
and
 
value-added
 
services
 
segment)
 
is
 
dependent
 
upon
 
our
ability
 
to
 
develop
 
or
 
acquire
 
and
 
maintain
 
and
 
protect
 
new
 
products
 
and
 
technologies
 
that
 
achieve
 
market
acceptance with acceptable margins.
Our future success
depends on our ability
to timely develop (or
obtain the right
 
to 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 significant
 
resources, including
employees
with the requisite skills, experience
and expertise, particularly in our
 
technology 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 expenses
 
increased expenses related to the
software and could adversely
affect
our
relationships
with
customers
as
well
as
our
reputation.
 
While
With respect to certain
software
and
e-services
that
we
27
that we develop, are protected
under patent law,
we rely primarily
upon copyright, trademark and
 
and trade secret
laws, as well
as contractual and
common law protections and confidentiality obligations.
 
confidentiality obligations. We
cannot provide assurance that
such
legal protections
will be
available, adequate or enforceable in
a timely manner to protect
 
our software or e-services
products.
Our expansion throughRisks inherent in acquisitions, dispositions and joint ventures involvescould
 
risks and may not result inoffset the benefits and
revenue growth we expect.
anticipated benefits.
One of our business strategies has been to expand our domestic and
 
international markets in part through
acquisitions and joint ventures and we expect to continue to make acquisitions
 
and 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 financialhuman resources functions, and there
 
there
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 ventures
or that we will avoid unforeseen additional
costs, taxes, or expenses.
 
Our ability to
successfully implement our acquisition and joint venture
strategy depends
upon, among other things, the following:
•
the availability of suitable acquisition or joint venture candidates at
 
acceptable prices;
•
our ability to consummate such transactions, which could potentially
 
be prohibited due to U.S. or
foreign antitrust regulations;
•
the liquidity of our investments and the availability of financing on
 
acceptable terms;
•
our ability to retain customers or product lines of the acquired businesses or
 
joint ventures;
•
our ability to retain, recruit and incentivize the management of the companies
 
companies 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,
 
management, financial and
operational controls and strategies.
strategies.
Furthermore, some of our acquisitions and future acquisitions may give
 
rise to an obligation to make contingent
payments or to satisfy certain repurchase obligations, which payments
 
could 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 delay
the 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 involvement
in a divested business,
such as through transition service agreements, indemnities or other current
or contingent financial obligations.
Under these arrangements, performance by the acquired or divested
business, or other conditions outside our
control, could affect our future financial results.
Certain provisions in our governing documents and other documents to
 
which we are a party may discourage
third parties from seeking to acquire us that might otherwise result in
 
our stockholders receiving a premium
over the market price of their shares.
The provisions of our certificate of incorporation and by-laws may
 
make it more difficult for a third-party to
acquire us, may discourage acquisition bids and may impact the price
 
that certain investors might be willing to pay
in the future for shares of our common stock.
 
These provisions, among other things require:
•
require (i) the affirmative vote
of the holders of at least 60% of the shares of common stock
entitled to vote
to
approve a merger, consolidation, or
a sale, lease, transfer or exchange of all or substantially all of our
assets; and
•
 
and (ii) the affirmative vote of the holders
of at least 66 2/3% of our common stock entitled
to vote to (i)(a)
remove a director; and (ii)(b) to amend or repeal our
by-laws, with certain limited exceptions.
 
exceptions.
In addition, certain of our employee incentive plans provide for accelerated
 
for
accelerated vesting of stock options and other
awards upon termination without
cause within two years following a
change
in control, or grant the plan committee
discretion to accelerate
awards upon a change of control.
 
Further,
certain agreements between us and our executive
officers provide for increased severance
payments and certain
benefits if those
executive officers are terminated
without cause by us or if they terminate
for good reason, in each
case within
two years following a change in
control or within ninety days prior
to the effective date of the change in
control
or after the first public
announcement of the pendency of the change
in control.
Adverse changes in supplier rebates or other purchasing incentives
could negatively affect our business.
The terms
on which
we purchase
or sell
products from
many suppliers
may entitle
us to
receive a
rebate or
other
purchasing incentive based on the attainment of certain growth
goals.
Suppliers may reduce or eliminate rebates or
incentives
offered
under
their
programs,
or
increase
the
growth
goals
or
other
conditions
we
must
meet
to
earn
rebates
or
incentives
to
levels
that
we
cannot
achieve.
Increased
competition
either
from
generic
or
equivalent
branded products
could result
in us
failing to
earn rebates
or incentives
that are
conditioned upon
achievement of
growth goals.
Additionally, factors outside
of our control, such as customer
preferences, consolidation of suppliers
or supply issues, can have a material impact on
our ability to achieve the growth goals established by
our suppliers,
 
 
27
which
may
reduce the
amount of
rebates
or
incentives we
receive.
The
occurrence
of
any
of
these events
could
have an adverse impact on our business, financial condition or operating
results.
Sales of corporate brand products entail additional risks, including the risk that such sales could
adversely affect
our relationships with suppliers.
We offer
certain 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
not
limited to
potential product
liability risks,
mandatory or
voluntary product
recalls, potential
supply chain
and
distribution
chain
disruptions,
and
potential
intellectual
property
infringement
risks.
Any
failure
to
adequately
address
some
or
all
of
these
risks
could
have
an
adverse
effect
on
our
business, financial
condition
or
operating
results.
In
addition,
an
increase
in
the
sales
of
our
corporate
brand
products
may
negatively
affect
our
sales
of
products owned by our
suppliers which, consequently,
could adversely impact certain
of our supplier relationships.
Our ability to locate qualified, economically stable suppliers who satisfy our requirements, and to
acquire sufficient
products in
a timely
and effective
manner,
is critical
to ensuring,
among other
things, that
customer confidence
is
not diminished.
In addition, we
are exposed to
the risk
that our competitors
or our large
customers may introduce
their own
private label,
generic, or
low-cost products
that compete
with our
products at
lower price
points.
Such
products could
capture significant
market share
or decrease
market prices
overall, eroding
our sales
and margins.
Any failure
to develop sourcing
relationships with a
broad and deep
supplier base could
have an adverse
effect on
our business, financial condition or operating results.
INDUSTRY RISKS
Security risks generally associated with our information systems and our
technology products and services have
in the recent past adversely affected our business and results of operations, and could
in 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 subject
to 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 and
distribution 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’ electronic
medical or dental
records (including protected health information of their patients); and
•
maintain and manage global human resources, compensation and payroll
systems.
In addition to health information in our customers’ electronic
medical and dental records, certain of our IS stores
other sensitive personal and financial information, such as healthcare
and other information related to our
employees, as well as other sensitive information such as credit card
information 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 increased
in
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 healthcare
industry in particular
has been targeted by threat actors seeking to undermine companies’ cybersecurity
defensive 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
28
defenses are monitored and routinely tested internally and by external
 
parties.
28
Despite these efforts, our facilities
INDUSTRY RISKSand 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 human
errors,
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 defects
in 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 guaranty
that such measures will successfully stop
any one particular cybersecurity incident given the constantly evolving
nature of the threat.
We may also incur
substantial costs as we update our cybersecurity defense systems and our general
computer controls to meet
evolving challenges, and legislative or regulatory action related to cybersecurity
may increase our costs to develop
or implement new technology products and services.
A cyberattack that bypasses or compromises our IS cybersecurity / or general
information technology (“IT”)
controls (including third-party systems we rely on) causing an IS security breach
may lead, and has in the past led,
to a disruption of our IS business systems (including third-party systems we
rely 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 internal
controls 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 accounting
and reporting controls.
A cyberattack that bypasses or compromises our IS cybersecurity / or general
computer controls or those of third
parties with whom we engage may also lead to claims against us by
affected parties and/or governmental agencies,
and involve fines and penalties, as well as substantial defense and settlement
expenses.
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 financial
accounting and reporting of results of
operations, divert the attention of management, and adversely impact
our results of operations.
In addition, we develop products and provide services to our customers
that are technology-based, and a
cyberattack that bypasses the IS supporting our products or services causing
a security breach and/or perceived
security vulnerabilities in our products or services could also cause significant
loss of business and reputational
harm, and actual or perceived vulnerabilities may lead to claims against
us by our customers and/or governmental
agencies.
In addition, certain of our practice management products and services
purchased by health care
providers, such as physicians and dentists, are used to store and manage patient
medical or dental records.
These
customers are subject to laws and regulations which require that they
protect the privacy and security of those
records, and our products may be used as part of these customers’ comprehensive
data 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 of
our subsidiaries, in October 2023, Henry Schein
experienced a cybersecurity incident that primarily affected the operations of our
North American and European
dental and medical distribution businesses.
Henry Schein One, our practice management software, revenue
cycle
management and patient relationship management solutions business was
not affected, and our manufacturing
businesses were mostly unaffected.
Once we became aware of the issue, we took steps to assess, contain
and
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 information
maintained on our systems belonging to
certain third parties and since that date we have notified affected parties and potentially
affected 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 and
related applications, which has since been
remediated.
The October 2023 cybersecurity incident disrupted key
business operations, adversely impacted our
financial results for the fourth quarter and full year 2023, diverted
attention 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
29
2024, two putative class actions were filed against us based on the incident
and 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 cybersecurity
requirements on us as a result of the
incident we experienced in October 2023, and some customers and suppliers
have 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 product
availability 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 of
the 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 not
 
be 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, which
 
could allow them to compete more
successfully.
Most of our products are available from several sources and our customers
tend to have relationships
with several distributors.
Competitors could obtain exclusive rights
to market particular
products, which we would
then be unable to market.
Manufacturers also could increase their
efforts to sell directly to end-users and
thereby
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 care
 
products, which could have a material
adverse effect on our margins and product availability. We
 
We could be subject to charges and financial losses in the
event we fail to satisfy minimum purchase commitments contained
 
in some of our contracts.
Additionally,
traditional health care supply and distribution relationships are being challenged
 
by electronic online commerce
solutions.
The continued advancement of online commerce by third
 
parties 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 and
 
our customers on a timely basis.
The
emergence of such potential competition and our inability to anticipate and
 
effectively respond to changes on a
timely basis could have a material adverse effect on our business.
 
The repeal or judicial prohibition on implementation of the Affordable Care Act
could materially adversely
affect our business.
The U.S. 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”), greatly expanded
health insurance coverage in the
United States and has been the target of litigation and Congressional reform efforts since its adoption.
The U.S.
Supreme Court, in upholding the constitutionality of the ACA and its
individual mandate provision in 2012,
simultaneously limited ACA provisions requiring Medicaid expansion,
making such expansion a state-by-state
decision.
In 2017, the U.S. Congress effectively repealed the ACA’s
individual mandate provision by eliminating
the financial penalty for non-compliance.
In the most recent ACA litigation, a federal appeals court found
the
individual mandate to be unconstitutional, and returned the case to a lower federal
court for consideration of
whether the remainder of the ACA could survive the excision of the individual
mandate.
This decision was
appealed to the U.S. Supreme Court, and a decision is expected soon.
Any outcome of this case that changes the
ACA, in addition to future legislation, regulation, guidance and/or Executive
Orders that do the same, could have a
significant impact on the U.S. healthcare industry and our operations.
The health care industry is experiencing changes due to political, economic and
 
and regulatory influences that could
materially adversely affect our business.
The health care industry is highly regulated and subject to changing
 
political, economic, and regulatory influences.
 
In recent years, the health care industry has undergone, and is in the process of undergoing, significant
 
significant changes
driven by various efforts to reduce costs, including, among other factors: trends
 
toward managed care; collective
purchasing arrangements and consolidation among office-based health care practitioners; and
 
and changes in
reimbursements to customers, including increased attention to value-based payment
 
arrangements, as well as
growing enforcement activities (and related monetary recoveries) by governmental
 
officials.
Both our profitability
and the profitability of our customers may be materially adversely affected by laws
 
and 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 been
the 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 Orders
that do the same, could have a
significant impact on the U.S. healthcare industry and the ability or willingness
of individuals to engage with it.
 
2930
Expansion of group purchasing organizations (“GPO”)GPOs, DSOs or provider networks
and the multi-tiered
costing
structure may place us at a
competitive disadvantage.
The medicalhealth care products industry is subject to a multi-tiered costing structure, which
 
which can vary by manufacturer
and/or product.
product. Under this structure, certain institutions can obtain more favorable
 
favorable prices for medicalhealth 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 GPOsDSOs may shift purchasing decisions
to entities or persons with whom we
do not have a historical relationship
and 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 eliminating
or reducing the services historically
provided by distributors.
Although we are seeking to obtain similar
terms from manufacturers
to
access lower
prices demanded by GPO and DSO contracts or other contracts,
and to
develop relationships with existing and
emerging provider networks, GPOs and GPOs,DSOs, we cannot guarantee that such terms will
 
be obtained or contracts
executed.
 
Increases in shipping costs or service issues with our third-party shippers
 
could harm our business.
Our ability to meet our customers’ expedited delivery expectations is an
 
integral 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-
partythird-party delivery services, and typically bear
the cost of shipment.
Accordingly,
any significant increase in shipping
rates could have a material adverse
effect 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 materially
adversely
affect our ability to deliver
products on a timely basis.
MACRO ECONOMICMACRO-ECONOMIC AND POLITICAL RISKS
Uncertain global and domestic macro-economic and political conditions could
 
could materially adversely affect our
results of
operations and financial condition.
Uncertain global and domestic macro-economic and political conditions
that affect the economy
and the economic
outlook of the
United States, Europe, Asia, and other parts of the
world 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, (including, withouttariffs and sanctions, or greater
 
limitation, the United States-
Mexico-Canada Agreement (USMCA), the EU-UK Trade and Cooperation Agreement of December
2020, and other international trade agreements);
•
greater restrictions on
imports and exports;
•
supply chain disruptions due to social issues;disruptions;
•
changes in laws and policies governing health care or data privacy;
•
tariffs and sanctions;
•
changes to the relationship between the United States and China;
•
sovereign debt levels;
•
the inability of political institutions to effectively resolve actual or perceived
 
economic, currency or
budgetary crises or issues;
•
consumer confidence;
•
unemployment levels (and a corresponding increase in the uninsured
 
and underinsured population);
•
changes in regulatory and tax regulations;
•
interest rate fluctuations, and strengthening of the dollar, which have and will continue to
 
impact our
increases in interest rates;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 increase
 
prices over time;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;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, and
 
investment in territories and
countries where we do business.
30
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 to
reduce, modify, delay,
or cancel plans to purchase
our products
and may cause suppliers to reduce their output or change
their 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 often
allows us to offer lower-cost national brand
solutions or corporate brand alternatives to our more price-sensitive
customers who are unable to absorb price
increases, thus positioning us to protect our gross profit.
The strengthening of the dollar, likewise, has impacted
our revenues and costs, but neither inflation nor exchange rates have
materially 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 to
make 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.
REGULATORY
 
AND LITIGATION RISKS
Failure to comply with existing and future regulatory requirements
 
could materially adversely affect our
business.
We strive to be compliant with the applicable laws, regulations and guidance described below in all material
The lawsrespects, and regulations that govern our businessbelieve we have effective compliance programs and operations areother 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 could
affect our ability to comply, as well as,
interpretations, future changes, additions and enforcement approaches,
(including in light
of political changes, such
as with respect to the new administration of President Biden) thatchanges.
 
affect our abilityWhen we discover
situations of non-compliance we seek to comply.remedy them and bring
 
For example,
President Biden’s administration has authorized and encouraged a freeze on certain federal regulations
that have
been published but are not yet effective, as well as a review of all federal regulations
issued during President
Trump’s administration.the affected area back into compliance.
 
Changes
with respect to the applicable laws, regulations and regulations mayguidance described below
 
may require us to update or revise
revise our operations, services, marketing practices, and compliance programs
 
and controls, and may impose additional
additional and unforeseen costs on us, pose new or previously immaterial
risks to us, or
may otherwise have a material
material adverse effect on our business.
 
There can be no assurance that current and future government
 
regulations
will not
adversely affect our business, and we cannot predict new regulatory priorities, the
 
the form, content or timing of
of regulatory actions, and their impact on the health care industry and on our
 
our business and operations.
Global efforts toward healthcare cost containment continue to exert pressure on
 
product pricing.
 
In the United
States, 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, 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 may
apply to some of our operations, that
require drug manufacturers, including re-packagers or re-labelers, to provide
advance notice of certain price
increases and to report information
relating to those price increases, while
others
have taken legislative or
administrative action to establish prescription drug
affordability boards or
multi-payer
purchasing pools to reduce
the cost of prescription drugs.
 
At the federal level, several related bills have been introduced
introduced and regulations
proposed which, if enacted or finalized,
respectively, would impact drug pricing and
related costs.
Under the Physician Payment Sunshine Act, we are required to collect
and report detailed
information regarding
certain financial
relationships we have with covered recipients, such asincluding physicians, dentists,
 
physicians, dentiststeaching hospitals, and teaching hospitals.certain other
non-physician practitioners.
 
We orand our subsidiaries may be required to report information under certain state
32
transparency laws that address
circumstances not covered by the Physician Payment Sunshine
Act, and
some of these state laws, as
well as the
federal law, can be ambiguous.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 ambiguous.unclear.
 
In the United States, government actions to seek to increase health-
health-relatedrelated price transparency may also affect our business.
31
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 payment
 
payment for, pharmaceuticals and medical
devices human cells, tissue and cellular and tissue-based products (“HCT/P products”).products.
 
Among the federal laws
with which we must comply are the Controlled Substances
Act,
the U.S. Food, Drug, and CosmeticFDC Act, as
amended (“FDC Act”), the Federal Drug Quality and Security Act, including DSCSA,
 
Drug Supply Chain Security Act
(“DSCSA”), and Section 361 of the Public Health
Services Act. AmongAct and Section 401 of the Consolidated Appropriations Act
 
of the Social Security Act.
Among other
things, such laws, and the regulations
promulgated thereunder:
 
•
regulate the storageintroduction, manufacture, advertising, marketing and distribution,promotion,
sampling, pricing and
reimbursement, labeling, packaging, storage, handling, reporting,returning or
 
recalling, reporting, and
distribution of, and record keeping
introduction, manufacturing and marketing of for drugs, HCT/P products and
 
and medical devices,
including
requirements with respect to unique medical device identifiers;
•
subject us to inspection by the U.S. FoodFDA and Drug Administration (“FDA”)
and the U.S. Drug
Enforcement Administration (“DEA”),DEA and similar state authorities;
•
regulate the storage, transportation and disposal of certain of our products
 
that are considered
hazardous materials;
•
require us to advertise and promote our drugs and devices in accordance
 
with applicable FDA
requirements;
•
require us to report average sales price (ASP) for drugs or biologicals payable
under 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 drug
products;
•
require us to design and operate a system to identify and report suspicious
 
orders of controlled
substances to the DEA;DEA and certain states;
•
require us to manage returns of products that have been recalled and subject
 
us to inspection of our
recall procedures and activities;
 
•
impose on us reporting requirements if a pharmaceutical, HCT/P product or
 
medical device causes
serious illness, injury or death;
•
require manufacturers, wholesalers, repackagersre-packagers and dispensers of prescription
 
drugs to identify and
trace certain prescription drugs as they are distributed;
 
•
require the licensing of prescription drug wholesalers and third-party
 
logistics providers; and
 
•
mandate compliance with standards for the recordkeeping, storage
 
and handling of prescription drugs,
and associated reporting requirements.
The FDA has become increasingly active in addressing the regulation of
 
computer 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 definition
to exclude certain software
from
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, including
regarding the types of clinical decision
support tools and other software that are exempt from regulation by the FDA as
medical devices, and the FDA
continues to issue new guidance in this area.
 
Certain of our businesses involve the
development and
sale 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 products
is
subject to regulation as a
medical device, which could subject us or one
or more of our businesses to
substantial additional requirements,
costs and potential enforcement actions or liabilities for noncompliance with
respect to these products. Some of our
imaging software is regulated as a medical device which subjects our businesses
to substantial additional
requirements, costs and potential enforcement actions or liabilities for noncompliance
 
for noncompliance with respect to these
these products.
 
33
Applicable federal, state, local, and foreign laws and regulations also may require
 
us 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 personal
 
information, 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 requirements
 
applicable to our specialty home medical
supplies business), and state Medicaid agencies, have recently increased
their regulatory and enforcement activities
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 governmental
laws and regulations affecting
affecting our operations abroad.
The failure to comply with any of these laws andor regulations, or new interpretations
 
interpretations of existing laws and regulations,
regulations, or the imposition of any additional laws and regulations, could
 
could materially adversely affect our business.
 
The costs
to us associated with complying with the various applicable statutes
 
statutes and regulations, as they now exist
and as they
may be modified, could be material.
 
Allegations by a governmental body that we have not complied
with these
laws could have a material adverse effect on our businesses.
 
While we believe that we are substantially
compliant
32
compliant with applicable laws and regulations, and believe we have adequate
 
compliance programs and controls in
place to
ensure substantial compliance, if it is determined that we have not complied
 
not complied with these laws, we are potentially
potentially subject to penalties, including warning letters, substantial civil and criminal penalties,
 
criminal penalties, mandatory recall
of product, seizure of product
and injunction, consent decrees and suspension
or limitation of payments
to us, product sale and
distribution.
 
If we
enter into settlement agreements to resolve allegations of non-compliance, we
 
we could be required
to make settlement
payments or be subject to civil and criminal penalties, including
 
fines and the loss of licenses.
 
Non-compliance
Non-compliance with government requirements could also adversely affect our ability to participate
 
to participate in important
federal and state
government health care programs, such as Medicare and Medicaid,
 
and Medicaid, and damage our reputation.
The EU Medical Device Regulation (“MDR”) may adversely affect our business.
 
The EU Medical Device Regulation No. 2017/745 (“EU MDR”) was meant
to become applicable three years after
publication (in May 2020). However, on April 23, 2020, to allow EEA national authorities, notified bodies,
manufacturers and other actors to focus fully on urgent priorities related to the COVID-19
pandemic, the European
Council and Parliament adopted Regulation 2020/561, postponing the date
of application of the EU MDR by one
year (to May 2021).
The EU MDR, applicable since May 26, 2021, significantly modifies and intensifies
the regulatory
compliance requirements
requirements for the medical device industry as a whole.
 
Once applicable,Among other things, the EU MDR will among other things:
MDR:
•
Strengthenstrengthens the rules on placing devices on the market and reinforcereinforces surveillance
 
once they are
available;
•
Establishestablishes explicit provisions on manufacturers’ responsibilities
 
responsibilities for the follow-up of the quality,
performance and safety of devices placed on the market;
•
Improveimproves the traceability of medical devices throughout the supply chain
to the end-user
or patient
through a unique identification number;
•
Setsets up a central database to provide patients, healthcare professionals and
 
the public with
comprehensive information on products available in the EU;
 
•
Strengthenstrengthens rules for the assessment of certain high-risk devices, such as
 
as implants, which may have to
undergo an additional check by experts before they are placed on the market; and
•
Identifyidentifies importers and distributors and medical device products through
 
registration in a database
(EudaMedEUDAMED not due, for the time being, until 2022 and after)the end of 2027 at
the earliest, as mentioned above).
 
In particular, the EU MDR imposes stricterstrict requirements for the confirmation that a product
meets 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.
 
MedicalAs mentioned above,
pursuant to Regulation 2023/607 and subject to certain conditions, medical devices
that have(i) obtained a certificate
been assessed and/or certified under the EU Medical Device Directive mayfrom May 25, 2017, (ii) which was
 
still 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 2024 (or until the expiry of their certificates, if applicable and earlier);December 31, 2027 for higher risk devices or December 31, 2028 for medium
 
however,and lower risk devices.
Nevertheless, EU MDR requirements regarding the distribution,
distribution, marketing and sale including quality systems and
post-market surveillance
have to be observed by
manufacturers, importers
and distributors as of the application date.date
(i.e., May 26, 2021).
 
The modifications created by the EU MDR may have an impact
on the
way we design and
manufacture products
and the way we conduct our business in
the European Economic Area.EEA.
 
34
If we fail to comply with laws and regulations relating to health care
 
fraud 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 similar
 
foreign) 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 fraudulent
 
claims 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 or reward
the referral
of a patient or ordering,
ordering, purchasing, leasing or arranging for, or recommending ordering, purchasing or leasing of,
items or
services
that are
paid for by federal, state and other health care payers and programs.
 
Certain additional state and
federal laws, such
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 which the physician (or
(or family member) has a
33
financial relationship, for the furnishing of certain designated
health services (for example,
(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 heightened
 
enforcement activity over the past few
years, and significant enforcement activity has been the result of “relators” who
 
serve 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 could result in significantsubstantial civil and criminal penalties and costs,under
 
including the federal False Claims Act, as well as
potential loss of licenses and the
ability to participate in federal and state
health care programs, andcriminal penalties,
or imposition of a corporate compliance monitor, which could
have a material adverse effect on our
business.
 
Also,
these measures may be interpreted or applied by a prosecutorial, regulatory or
 
regulatory or judicial authority in
a manner that
could require us to make changes in our operations or incur substantial defense
 
defense and settlement
expenses.
 
Even
unsuccessful challenges by regulatory authorities or private
relators could result
in reputational
harm and the
incurring of substantial costs.
 
Most states have adopted similar state false claims laws, and these state
 
state
laws have
their own penalties which may be in addition to 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 concerns
 
about
financial relationships between suppliers on the one hand and physicians,
 
dentists, and other health care providers,
on the other.
 
As a result, we regularly review and revise our marketing practices
 
as necessary to facilitate
compliance.
Our aspirations, goals and disclosures related to environmental, social
and governance matters and the focus on
regulators and private litigants among other things on related claims made
by companies and funds expose us to
numerous risks, including reputational, financial, legal and other risks,
that could have an adverse impact on us,
including on our stock price.
California has adopted stringent new climate disclosure requirements,
as has the EU,
and the SEC appears about to adopt expansive new disclosure requirements
on climate change.
In the EU, the Directive No. 2019/1937 of October 23, October 2019,
on the protection of persons who report breaches of
Union law,
 
which organizes the legal protection of whistleblowers must be implemented by EUwhistleblowers.
 
member states by
December 17, 2021. This Directive covers whistleblowers reporting
breaches
of certain EU laws, in particular as
regards public health, the above-mentioned
Directive No. 2001/83,
Regulation
No. 726/2004 or, as regards data
protection, the GDPR.
The Directive protects a wide range of people
and
includes former employees.
 
All private
companies with 50 or more employees are required
to create effective
internal reporting channels.
 
channels.All EU Member States other than Poland and Estonia have now implemented
the
Directive.
We also are subject to the requirements of the new Directive No. 2022/2464 on corporate sustainability reporting
(“CSR Directive”) adopted on December 14, 2022 and which has to be
implemented by EU members states by July
6, 2024, at the latest.
By amending Directives No. 2004/109, No. 2006/43, No. 2013/34
and Regulation No.
537/2014, the CSR Directive strengthens the existing rules on non-financial
reporting by setting new requirements
for large companies to publish sustainability-related information and, in particular, disclose details about
their risks
and impacts on environmental matters.
 
35
We
also are subject to certain United States and foreign laws and regulations
concerning the conduct of our foreign
operations, including the U.S. Foreign Corrupt Practices Act, the U.K. Bribery
 
Act, German anti-corruption laws
and other anti-bribery laws and laws pertaining to the accuracy of our internal
 
books and records, which have been
the focus of increasing enforcement activity globally in recent years.
 
Our businesses are generally subject to
numerous other laws and regulations that could impact our financial
 
results, including, without limitation,
securities, antitrust, consumer protection, and marketing laws and regulations.
In the EU, both active and passive bribery are criminalized.
The EU Council
Framework Decision 2003/568/JHA
of 22 July 2003
 
on combating corruption in the private sector
establishes more detailed rules on the liability of
legal persons and deterrent sanctions.
However, the liability of legal persons is regulated at a national
level.
Failure to comply with fraud and abuse laws and regulations, and other
 
laws and regulations, could result in
significant civil and criminal penalties and costs, including the loss of
 
licenses and the ability to participate in
federal and state health care programs, and could have a material adverse
 
effect on our business.
 
We may
determine to enter into settlements, make payments, agree to consent decrees
 
or enter into other arrangements to
resolve such matters.
 
Intentional or unintentional failure to comply with settlement agreements
or consent decrees
could
materially adversely
affect our business.
While we believe that we are substantially compliant with applicable fraud and
 
abuse and other laws and
regulations, and believe we have adequate compliance programs and controls
 
in place to ensure substantial
compliance, 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, could have a
material adverse effect on our business.
34
If we fail to comply with laws and regulations relating to the confidentialitycollection,
 
storage and processing of sensitive
personal information or
standards in electronic health records or transmissions,
we could
be required to make
significant changes to our
products, or incur substantial fines, penalties, or
other liabilities.
 
Our businesses that involve physician and dental practice management
 
products, and our specialty home medical
supply business,businesses, include electronic information technology systems that
 
that store and process personal health, clinical,
clinical, financial, and other sensitive information of individuals.
 
These information technology systems may be vulnerable
vulnerable to breakdown, wrongful intrusions, data breaches and
malicious attack, which
could require us to expend
expend significant resources to eliminate these problems and address
related security
concerns, and could involve claims
claims against us by private parties and/or governmental agencies.
We are directly or indirectly subject to numerous and evolving federal, state, local and foreign laws and regulations
that protect the privacy and security of personal information, such as theHIPAA, CAN-SPAM, TCPA,
 
HIPAA, the Controlling the Assault of
Non-Solicited Pornography and Marketing Act, the Telephone Protection and Electronic Protection Act of 1991,
Section 5 of the Federal Trade Commission
FTC Act, the CCPA, and the CPRA that becomesbecame effective on January 1,
2023.
 
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 that is 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
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 patient
information, 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.
In addition, the European Parliament and the Council of the European UnionEU adopted
 
have adopted the GDPR whicheffective from May 25, 2018,
increaseswhich increased privacy rights for Data Subjects, including individuals in Europe, or “Data Subjects”,
 
including individuals who are our customers,
suppliers and
employees.
 
The GDPR extended the scope of responsibilities for data controllers
 
and data processors, and
and generally imposes increased requirements and potential penalties on companies,
 
on companies, such as us, that are either
established in the EU and process personal data of Data Subjects (regardless
the Data Subject location), or that are
not established in the EU but that offer goods or
services to Data Subjects in the EU
or monitor their behavior (including by
companies based outside of Europe).
in the
EU. Noncompliance can result in penalties of up to the greater of EUR 20
 
million, or 4% of global company revenues.
revenues (sanction that may be public), and Data Subjects also have the right tomay seek compensation for damages.
 
EU memberMember states may individually impose
impose additional requirements and penalties regarding certain matters,limited
 
matters (for which the GDPR left some
36
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 the personal 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 personal data and the right to object to the processing.
On August 20, 2021, China promulgated the PIPL, which took effect on November
1, 2021.
The PIPL imposes
specific rules for processing personal information and it also specifies
that the law shall also apply to personal
information activities carried out outside China but for the purpose
of providing products or services to PRC
citizens.
Any non-compliance with these laws and regulations may subject
us to fines, orders to rectify or terminate
any actions that are deemed illegal 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
regarding the collection, use and disclosure of certain personal information
 
of California residents.
 
Compliance
with the new obligations imposed by the CCPA depends in part on how particular regulators interpret and apply
them, and because the CCPA is relatively new, them.
 
and its implementing regulations
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.
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 may negatively impact our
reputation, require us to expend
significant resources, and harm our
business.
 
Furthermore, California voters
approved the CPRA on November 3,
2020, which will amend and expand
expand the CCPA, including by providing
consumers with additional rights with respect to their personal information, and
and creating a new state agency to
enforce CCPA and CPRA.
 
The CPRA will comecame into effect on January 1, 2023, applying
to information collected
by businesses on or after January 1, 2022.
Other states, as well as the federal government, have increasingly
 
considered the adoption of similarly expansive
personal privacy laws, backed by significant civil penalties for non-compliance.
 
While we believe we have
substantially compliant programs and controls in place to comply with
 
the GDPR, CCPA, PIPL and CPRA requirements,
requirements, our compliance with these measures data privacy and cybersecurity laws
is likely to impose additional costs
on us,
and we cannot predict whether the
interpretations of the requirements, or
changes in our practices in response to
to new requirements or interpretations of
the requirements, could have a
material adverse effect on our business.
We also sell products and services that health care providers, such as physicians and dentists, use to store and
manage patient medical or dental records.
 
These customers and we are subject to laws, regulations and
 
industry
35
standards, such as HIPAA and the Payment Card Industry Data Security Standards, which require the protection of
the privacy and security of those records.
Our products or services
may be used as part of these customers’
comprehensive data security programs, including in connection with their
 
efforts to comply with applicable data
privacy and security laws and contractual requirements.
 
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 comply
with applicable legal or contractual data privacy and security requirements,
 
may not only cause us significant
reputational harm, but may also lead to claims against us by our customers
 
and/or governmental agencies and
involve substantial fines, penalties and other liabilities and expenses
 
and costs for remediation.
 
Additionally, under
Under the EU GDPR, health data belong to the category of “sensitive data” and benefit
 
and benefit from specific protections.protection.
Processing
Processing of such data is generally prohibited, except for specific exceptions.
Certain of our businesses involve the manufacture and sale of electronic
 
health record (“EHR”)(EHR) systems and other
products linked to government supported incentive programs, where
 
the EHR systems must be certified as having
certain capabilities designated in evolving standards, such as those adopted
 
by CMS and by the Office of the
National Coordinator for Health Information
Technology of HHS (“ONC”).ONC.
 
In order to maintain
certification of
our EHR products, we must satisfy the changing governmental
standards.
 
If any of ourother EHR systems
do not meet
these standards, yet have been relied upon by health care providers
to receive
federal incentive
payments, we may
be exposed to risk, such as under federal health care
fraud and abuse laws,
including the False
Claims Act.
 
WhileAdditionally, effective September 1, 2023, the OIG for HHS issued a final rule implementing civil
money penalties for information blocking as established by the Cures Act.
OIG incorporated regulations published
37
by ONC as the basis for enforcing information blocking penalties.
Each information blocking violation carries a $1
million penalty.
While we believe we are substantially in compliance with such certifications
 
and with applicable
fraud and abuse laws and
regulations and that we have adequate compliance
programs and controls
in place to
ensure substantial compliance,
we cannot predict whether changes in
applicable law, or interpretation of laws, or
resulting changes in our compliance programs and controls, could
have a
material adverse effect on our business.
 
Moreover, in order to satisfy our customers and comply with evolving legal requirements, our products
may need to
incorporate increasingly complex functionality, such as with respect to reporting and information blocking.
 
reporting
functionality.
Although we believe we are positioned to accomplish this, the effort may involve
 
increased costs,
and our failure to
implement product modifications, or otherwise satisfy applicable standards,
 
applicable standards, could have a material
adverse effect on
our business.
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 exchanged
 
information 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.
Tax legislation could materially adversely affect our financial results and tax liabilities.
 
We are subject to the tax laws and regulations of the United States federal, state, and local governments, as well as
foreign jurisdictions.
From time to time, various legislative initiatives
may be proposed
that could materially
adversely affect our tax positions.
There can be no assurance that our effective tax rate will not be
 
be materially
adversely affected by legislation resulting from these initiatives.
In addition, tax
laws and regulations are extremely
complex and subject to varying interpretations.
Although we believe that our
historical tax positions are sound and
consistent with applicable laws, regulations and existing precedent,
 
there can be no assurance that our tax positions
will not be challenged by relevant tax authorities or that we would be
 
successful in any such challenge.
We face inherent risk of exposure to product liability, intellectual property infringement and other claims in the
event that the use of the products we sell results in injury.
Our business involves a risk of product liability, intellectual property infringement and other claims in the ordinary
course of business, and from time to time we are named as a defendant
 
in cases as a result of our distribution of
products.
Additionally, we own interests in companies that manufacture certain dental and medical products.
As a
result, we
could be subject to the potential risk of product liability, intellectual property infringement or other
claims relating
to the manufacture and distribution of products by
those entities.
In addition,
as our private-label corporate brand
business continues
to grow, purchasers of such products may increasingly seek recourse directly from us, rather
than the ultimate
product manufacturer, for product-related claims.
Another potential risk we face in the
distribution of our products
is liability resulting from counterfeit or tainted products
infiltrating the supply
chain.
 
In
addition, some of the
products that we transport and sell are considered hazardous
 
materials.
The improper
handling of such materials or
36
accidents involving the transportation
of such materials could subject us
to liability or
at least legal action that
could harm our reputation.
 
Customs policies or legislative import restrictions could hinder the Company’s ability to import goods necessary
to our operations on a timely basis and result in government enforcement
actions and/or sanctions.
Government-imposed import policies and legislation regulating the
import of goods and prohibiting the use of
forced labor or human trafficking could result in delays or the inability to import
goods in a timely manner that are
necessary to our operations, and such policies or legislation could also
result in financial penalties, other sanctions,
government enforcement actions and reputational harm.
While the Company has policies against and seeks to
avoid the import of goods that are manufactured in whole or in part by forced
labor or through human trafficking,
as a result of legislative and governmental policy initiatives, we may be
subject to increasing potential delays,
added costs, supply chain disruption and other restrictions.
GENERAL RISKS
 
Security risks generally associated with our information systems and our
technology products and services could
materially adversely affect ourOur business and ouroperations, results of operations, could becash flows, financial condition
 
materially adversely affected ifand liquidity may be negatively
such products, services or systems (or third-party systems we rely on) are interrupted,
 
damaged by unforeseen
events, are subject to cyberattacks or fail for any extended period of
time.
 
38
impacted by the effects of disease outbreaks, epidemics, pandemics, or similar wide-spread
public health
concerns and other natural or man-made disasters, such as terrorism, civil
unrest, fire, and extreme weather
.
Our business operations, results of operations, cash flows, financial condition
and liquidity may be negatively
impacted by the effects of disease outbreaks, epidemics, pandemics, similar wide-spread
public health concerns and
other natural or man-made disasters, such as terrorism, civil unrest, fire,
and extreme weather (“disasters”).
For
example, as a global healthcare solutions company, the COVID-19 pandemic and the governmental responses
to it
had, and may again have, a material adverse effect on information systems (IS) in our business, to obtain, rapidly process, analyze, manage results of operations
and store customer,cash flows and may
product, supplierresult in a material adverse effect on our financial condition and employee data to,liquidity.
The impacts and potential impacts from
the COVID-19 pandemic included, and could include as a result of other disasters,
the following, among other things:
impacts:
•
significant volatility in supply, demand and selling prices for personal protective equipment (PPE), test
maintainkits and manage worldwide systemsrelated products;
•
reduction in peoples’ ability and willingness to facilitatebe in public;
•
reduction in peoples’ ability and willingness to seek elective care;
•
interrupted operations of industries that use or manufacture the purchaseproducts
we distribute;
•
impact of adapted business practices;
•
significant changes in political conditions;
���
volatility in the financial market; and
 
distribution 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 thousands of
customers;
•
process payments to suppliers; and
•
provide products and services that maintain certainunavailability or impairment of our customers’ electronicmanufacturing, distribution, or other
 
medicalfacilities, or dentalfirmwide systems
records (including protected healthsuch as our information of their patients).
systems.
 
Information security risks have generally increased in recent years, and a
cyberattack that bypasses our IS security
systems (including third-party systems we rely on) causing an IS security breach
may lead to a material disruption
of our IS business systems (including third-party systems we rely on) and/or
the loss of business information, as
well as claims against us by affected parties and/or governmental agencies, and involve
fines and penalties, costs
for remediation, and substantial defense and settlement expenses. In addition,
we develop products and provide
services to our customers that are technology-based, and a cyberattack
that bypasses the IS security systems of our
products or services causing a security breach and/or perceived security
vulnerabilities in our products or services
could also cause significant loss of business and reputational harm, and actual
or perceived vulnerabilities may lead
to claims against us by our customers and/or governmental agencies.
In particular, certain of our practice
management products and services purchased by health care providers, such
as physicians and dentists, are used to
store and manage patient medical or dental records.
These customers are subject to laws and regulations which
require that they protect the privacy and security of those records, and our
products may be used as part of these
customers’ comprehensive data security programs, including in connection
with their efforts to comply with
applicable 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
to comply with applicable legal
requirements, may not only cause reputational harm and loss of business,
butThe impact from disasters may also lead to claims against us by
our customers and/or governmental agencies and involve damages, fines andexacerbate other risks discussed herein,
 
penalties, costs for remediation, andany of which could have a material
substantial defense and settlement expenses. In addition, a cyberattack
on a third-party that we use to manage a
portion of our information systems could result in the same effects.
Additionally, legislative or regulatory action
related to cybersecurity may increase our costs to develop or implement
new technology products and services.
Furthermore, procedures and safeguards must continually evolve to meet new
IS challenges, and enhancing
protections, and conducting investigations and remediation, may impose additional
costsadverse effect on us.
Finally, our business may be interrupted by shortfalls of IS systems providers engaged by our customers, such
as
Internet-based services upon which our customers depend to access certain of
our products.
Our global operations are subject to inherent risks that could materially
 
adversely affect our business.
Our global operations are subject to risks that maycould materially adversely affect our business. The
 
The risks that our
global operations are subject to include, among other things:
 
•
difficulties and costs relating to staffing and managing foreign operations;
•
difficulties and delays inherent in sourcing products, establishing channels of distribution and
 
and contract
manufacturing in foreign markets;
37
•
fluctuations in the value of foreign currencies (including, without limitation,
in connection with
Brexit);currencies;
•
uncertainties relating to the EU-UK Tradetrade agreements and Cooperation Agreement of December 2020, including
for example potential implementation problems such as border delays, as
well as potential changes to
the U.K. regulatory scheme to replace EU requirements;international trade relationships;
 
•
longer payment cycles of foreign customers and difficulty of collecting receivables
 
in foreign
jurisdictions;
•
repatriation of cash from our foreign operations to the United States;
•
regulatory requirements, including, without limitation, anti-bribery, anti-corruption and laws pertaining
to the accuracy of our internal books and records;
•
litigation risks, new or unanticipated litigation developments and
the status of litigation matters;
•
unexpected difficulties in importing or exporting our products and import/export
 
tariffs, quotas,
sanctions or penalties;
•
limitations on our ability under local laws to protect our intellectual
 
property;
•
unexpected regulatory, legal, economic and political changes in foreign markets;
•
changes in tax regulations that influence purchases of capital equipment;
•
civil disturbances, geopolitical turmoil, including terrorism, war or political
 
or military coups; and
•
risks associated with climate change, including physical risks such as
 
public health emergencies, including COVID-19.impacts from extreme weather
events and other potential physical consequences, regulatory and technological
requirements, market
developments, stakeholder expectations and reputational risk.
39
Our future success is substantially dependent upon our senior
 
management, and our revenues and profitability
depend on our relationships with capable sales representatives,
service technicians, and other personnel who
interact directly with our customers, as well as customers, suppliers
 
customers, suppliers and manufacturers of
the products that we distribute.
distribute.
Our future success is substantially dependent upon the efforts and abilities of
 
members of our existing senior
management, particularly Stanley M. Bergman, Chairman and Chief Executive Officer. The
In November 2022, Mr.
Bergman’s employment agreement was extended through December 31, 2025.
Although the Company has an
internal succession plan for its senior leadership team, including Mr. Bergman, the loss of the services of Mr.
Mr. Bergman could have a material adverse effect on our business. We have an employment agreement with Mr.
Bergman. We do not currently have “key man” life insurance
policies on any of our employees.
Competition for
senior management is intense, burnout and turn-over rates
are
increasing workplace concerns, and we may not be successful in attracting
 
attracting and retaining key personnel. Additionally,
Additionally, our future revenues and profitability depend on our ability to
maintain satisfactory relationships with
qualified sales representatives, service technicians, and other personnel
who interact directly with our customers, as
personnel as well as customers, suppliers, and manufacturers.
If we
fail to maintain our existing relationships with
such persons
or fail to acquire relationships with such key persons in the future,
 
future, our business may be materially adversely
adversely affected.
Disruptions in the financial markets may materially adversely
 
affect the availability and cost of credit to us.
Our ability to make scheduled payments or refinance our obligations with
 
respect to indebtedness will depend on
our operating and financial performance, which in turn is subject to prevailing
 
economic conditions and financial,
business and other factors beyond our control.
Disruptions in the financial
markets may materially adversely affect
the availability and cost of credit to us.
Item 1B.
 
Unresolved Staff Comments
We have no unresolved comments from the staff of the SEC that were issued 180 days or more preceding the end of
our 20202023 fiscal year.
Item 1C.
Cybersecurity
We rely on information systems in our business to obtain, rapidly process, analyze, manage and store customer,
product, supplier and employee data to, among other things: maintain
and manage multiple information systems
worldwide to facilitate the purchase and distribution 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
thousands of customers; process payments to suppliers and vendors; provide
products and services that maintain
certain of our customers’ electronic medical or dental records (including
protected health information of their
patients) and maintain and manage global human resources, compensation
and payroll systems.
For these purposes,
we define “information systems” in a manner consistent with the definition
contained in the new rules recently
adopted by the SEC to mean “electronic information resources, owned or used
by the registrant, including physical
or virtual infrastructure controlled by such information resources, or components
thereof, organized for the
collection, processing, maintenance, use, sharing, dissemination, or disposition
of the registrant's information to
maintain or support the registrant's operations.”
Cybersecurity Risk Management and Strategy
We have developed and implemented a cybersecurity risk mitigation strategy intended to protect our information
systems.
Our cybersecurity risk mitigation strategy is designed
so that the Company’s cybersecurity program is
aligned with generally accepted cybersecurity standards and frameworks,
in particular the NIST Cybersecurity
Framework, or “NIST CSF,” and our Company is externally audited, or certified, with ISO27001 partial scope.
We maintain an Office of Cybersecurity (“OCS”), led by our Chief Information Security Officer (“CISO”), which
oversees the operations of our cyber risk mitigation strategy.
The OCS is a cross-functional, enterprise-wide
management team, which continuously evaluates our global cybersecurity
program’s effectiveness and is focused
on maintaining and protecting our information systems.
In overseeing the operations of our cyber risk mitigation
40
strategy, the OCS partners with our Global Technology Solutions team, which is led by our Chief Technology
Officer (“CTO”) and is comprised of over one hundred professionals that support our information
systems and
operations.
Our cyber risk mitigation strategy includes monitoring for
and addressing risks that materialize within
the Company’s information systems, as well as at our third-party vendors, suppliers and other third-party business
partners.
Our CISO reports to our CTO.
Our CTO,
who also serves as Senior Vice President,
has more than 30 years of
experience leading large-scale global IT organizations and received a Bachelor of Business Administration
in
Business Computer Information Systems and a Master of Business Administration
from Hofstra University.
See
also
Our Vice President, Global CISO, who also serves as Vice
President and Head of the Office of Cyber Security, is a National Security Agency Certified Information Systems
Securities Engineer, has nearly 30 years of experience leading global cybersecurity programs, and received
a BS,
Electrical Engineering and Computer Science from Lafayette College,
and a Master of Science, Business,
Information Technology Management from Johns Hopkins University.
The cybersecurity risk mitigation strategy
is also overseen by senior managers who are members of our Executive
Steering Committee, comprised of the
Company’s most senior technology, legal and internal auditing officers.
Our CEO is regularly briefed on issues,
incidents, and developments, and our Board oversees our risk mitigation
strategy principally through its Audit
Committee and Regulatory, Compliance and Cybersecurity Committee, as described in more detail below.
Our cybersecurity risk management program includes, among other
elements:
●
risk assessments designed to help identify material cybersecurity risks
to our information systems;
●
a security team principally responsible for managing our (i) cybersecurity
risk assessment processes, and
(ii) defining cybersecurity control standards;
●
the use of expert external service providers to assess, test or otherwise assist
with aspects of our
cybersecurity controls, and to respond to specific cybersecurity threats;
●
the review and assessment of past cybersecurity incidents with a view to learning
from those events to
further strengthen our cyber risk mitigation strategy;
●
a written cybersecurity incident response plan that includes procedures
for responding to cybersecurity
incidents; and
●
a Global Information Security Policy, together with more detailed information security policies,
procedures, standards, and guidelines.
In addition, all employees with systems access are required to participate
in mandatory annual cybersecurity and
anti-phishing courses, along with compliance programs.
Our employees who perform financial gatekeeper roles
also receive additional mandatory annual data security training specific
to spoofing, phishing and similar data
security threats.
Per written Company policies, employees are also required
to safeguard confidential information.
Our cybersecurity risk strategy is integrated into our overall enterprise
risk management program, and our
cybersecurity team is supported by and connected with the enterprise risk
management team.
Prior Cybersecurity Incidents
In addition to immaterial and unrelated prior incidents at certain of
our subsidiaries, in October 2023 Henry Schein
experienced a cybersecurity incident that primarily affected the operations of our
North American and European
dental and medical distribution businesses.
Henry Schein One, our practice management software, revenue
cycle
management and patient relationship management solutions business, was
not affected, and our manufacturing
businesses were mostly unaffected. Once we became aware of the issue, we took steps
to assess, contain and
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 information
maintained on our systems belonging to
certain third parties and since that date we have notified affected and potentially affected parties
as appropriate.
41
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 and related
applications, which has since been
remediated.
As described in “Management’s Discussion & Analysis – 2023 Compared to 2022, the incident
adversely impacted our financial results for the fourth quarter and full year 2023.
We also expect some short-term
residual impact on our financial results in 2024.
It is part of the mission of our cybersecurity risk mitigation strategy to constantly
evolve our cybersecurity defenses
to adapt to evolving risks, and to learn from prior incidents, and we
have evaluated and continue to evaluate the
incident with the assistance of third-party expert consultants.
Members of the Audit Committee and Regulatory,
Compliance and Cybersecurity Committee of our Board of Directors are
conducting a review of the October 2023
cybersecurity incident, including the measures undertaken in response to the incident.
Cybersecurity Governance
Our Board has a Regulatory, Compliance and Cybersecurity Committee that focuses on cybersecurity oversight,
together with other board committees, principally the Audit Committee.
The purpose of the Regulatory,
Compliance and Cybersecurity Committee is to assist the Board by providing
guidance to, and oversight of, the
Company’s senior management responsible for assessing and managing Company-wide regulatory, corporate
compliance and cybersecurity risk management programs.
The primary responsibilities of the Regulatory,
Compliance and Cybersecurity Committee are to (i) discuss cybersecurity
strategic decisions, issues, challenges and
opportunities relating thereto, (ii) provide expertise to guide assessment
and monitoring of Company-wide
regulatory, corporate compliance and cybersecurity risk management budgeting, spending and capital investment,
(iii) monitor progress and status of the Company’s regulatory, corporate compliance and cybersecurity risk
management programs, (iv) review and evaluate major regulatory, corporate compliance and cybersecurity risk
management initiatives to identify emerging and future opportunities for synergy or to
leverage regulatory,
corporate compliance and cybersecurity risk management investments
more effectively and cost efficiently,
(v) report to the Audit Committee on regulatory, corporate compliance and cybersecurity risk management matters
reviewed by the Regulatory, Compliance and Cybersecurity Committee that may impact the Company’s financial
reporting and (vi) be generally available to, and communicate with,
the Company’s senior management, and to
inform the Board in the areas described above.
Our CISO and CTO, along with other key executives who are part of our Executive
Steering Committee, review
strategy, policy,
program effectiveness, standards, enforcement and cybersecurity issue management
with the
Board’s Regulatory,
Compliance and Cybersecurity Committee on at least a quarterly basis and
with the Audit
Committee on at least a bi-annual basis.
Our CTO meets with Board members outside of the formal meetings on a
regular basis as well as in connection with specific cybersecurity issues or
threats.
ITEM 2.
Properties
Within our health care distribution segment (for properties with more than 100,000 square feet) we lease
and/or
own approximately 5.7 million square feet of properties, consisting of distribution,
office, showroom,
manufacturing and sales space, in locations including the United States, Australia,
Austria, Belgium, Brazil,
Canada, Chile, China, the Czech Republic, France, Germany, Hong Kong SAR, Ireland, Israel, Italy, Japan,
Liechtenstein, Luxembourg, Malaysia, Mexico, Morocco, the Netherlands, New Zealand,
Poland, Portugal,
Singapore, South Africa, Spain, Sweden, Switzerland, Thailand, United
Arab Emirates and the United Kingdom.
Lease expirations range from 2024 to 2041.
We believe that our properties are in good condition, are well maintained and are suitable and adequate to carry on
our business.
We have additional operating capacity at certain distribution center facilities.
ITEM 3.
Legal Proceedings
For a discussion of Legal Proceedings, see
of the Notes to the
Consolidated Financial Statements included under Item 8.
42
ITEM 4.
Mine Safety Disclosures
Not applicable.
PART
II
ITEM 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Our common stock is traded on the Nasdaq Global Select Market tier of
the Nasdaq Stock Market, or Nasdaq,
under the symbol HSIC.
On February 20, 2024, there were approximately 107,000 holders
of record of our common stock and the last
reported sales price was $75.64.
A substantially greater number of holders of our common stock are “street
name”
or beneficial holders, whose shares are held by banks, brokers and other financial
institutions.
Purchases of Equity Securities by the Issuer
Our share repurchase program, announced on March 3, 2003, originally
allowed us to repurchase up to two million
shares pre-stock splits (eight million shares post-stock splits) of our common
stock, which represented
approximately 2.3% of the shares outstanding at the commencement
of the program.
Subsequent additional
increases totaling $4.9 billion, authorized by our Board, to the repurchase
program provide for a total of $5.0 billion
(including $400 million authorized on February 8, 2023) of shares
of our common stock to be repurchased under
this program.
As of December 30, 2023,
we had repurchased approximately $4.7 billion of common stock (90,394,805
shares)
under these initiatives, with $265 million available for future common stock
share repurchases.
The following table summarizes repurchases of our common stock
under our stock repurchase program during the
fiscal quarter ended December 30, 2023:
Total Number
Maximum Number
Total
of Shares
of Shares
Number
Average
Purchased as Part
that May Yet
of Shares
Price Paid
of Our Publicly
Be Purchased Under
Fiscal Month
Purchased (1)
Per Share
Announced Program
Our Program (2)
10/1/2023 through 11/4/2023
-
-
-
5,048,074
11/5/2023 through 12/2/2023
-
-
-
4,529,764
12/3/2023 through 12/30/2023
692,441
$
72.32
692,441
3,499,205
692,441
692,441
(1)
All repurchases were executed in the open market under our existing publicly announced authorized program.
(2)
The maximum number of shares that may yet be purchased under this program is determined at the end of each month based on the
closing price of our common stock at that time.
This table excludes shares withheld from employees to satisfy minimum tax
withholding requirements for equity-based transactions.
Dividend Policy
We have not declared any cash or stock dividends on our common stock during fiscal years 2023 or 2022.
We
currently do not anticipate declaring any cash or stock dividends on our common
stock in the foreseeable future.
We intend to retain earnings to finance the expansion of our business and for general corporate purposes, including
our share repurchase program.
Any declaration of dividends will be at the discretion of our Board and
will depend
upon the earnings, financial condition, capital requirements, level
of indebtedness, contractual restrictions with
respect to payment of dividends and other factors.
form10k20231230p43i0 form10k20231230p43i1
form10k20231230p43i2 form10k20231230p43i3
form10k20231230p43i4
form10k20231230p43i5
43
$50
$100
$150
$200
$250
$300
December
2018
December
2019
December
2020
December
2021
December
2022
December
2023
Henry Schein, Inc.
Dow Jones US Health Care Index
NASDAQ Composite Index
Stock Performance Graph
The graph below compares the cumulative total stockholder return
on $100 invested, assuming the reinvestment of
all dividends, on December 29, 2018, the last trading day before the
beginning of our 2019 fiscal year, through the
end of our 2023 fiscal year with the cumulative total return on $100
invested for the same period in the Dow Jones
U.S. Health Care Index and the Nasdaq Stock Market Composite Index.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL
RETURN
ASSUMES $100 INVESTED ON DECEMBER 29, 2018
ASSUMES DIVIDENDS REINVESTED
December 29,
December 28,
December 26,
December 25,
December 31,
December 30,
2018
2019
2020
2021
2022
2023
Henry Schein, Inc.
$
100.00
$
110.31
$
109.05
$
124.11
$
132.28
$
125.37
Dow Jones U.S. Health
Care Index
100.00
123.48
140.83
175.06
168.44
171.61
NASDAQ Stock Market
Composite Index
100.00
138.27
198.34
244.03
164.56
238.01
ITEM 6.
[Reserved]
44
ITEM 7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Cautionary Note Regarding Forward-Looking Statements
In accordance with the “Safe Harbor” provisions of the Private Securities
Litigation Reform Act of 1995, we
provide the following cautionary remarks regarding important factors
that, among others, could cause future results
to differ materially from the forward-looking statements, expectations and assumptions
expressed or implied
herein.
All forward-looking statements made by us are subject to
risks and uncertainties and are not guarantees of
future performance.
These forward-looking statements involve known and unknown
risks, uncertainties and other
factors that may cause our actual results, performance and achievements
or industry results to be materially
different from any future results, performance or achievements expressed or implied by such
forward-looking
statements.
These statements are generally identified by the use of such
terms as “may,” “could,” “expect,”
“intend,” “believe,” “plan,” “estimate,” “forecast,” “project,” “anticipate,”
“to be,” “to make” or other comparable
terms.
Factors that could cause or contribute to such differences include, but are not limited
to, those discussed in
this Annual Report on Form 10-K, and in particular the risks discussed under
the caption “Risk Factors” in Item 1A
of this report and those that may be discussed in other documents we
file with the Securities and Exchange
Commission (“SEC”).
Risk factors and uncertainties that could cause actual results to differ materially from
current and historical results
include, but are not limited to: our dependence on third parties for
the manufacture and supply of our products; our
ability to develop or acquire and maintain and protect new products (particularly
technology products) and
technologies that achieve market acceptance with acceptable margins; transitional
challenges associated with
acquisitions, dispositions and joint ventures, including the failure
to achieve anticipated synergies/benefits, as well
as significant demands on our operations, information systems,
legal, regulatory, compliance, financial and human
resources functions in connection with acquisitions, dispositions and
joint ventures; certain provisions in our
governing documents that may discourage third-party acquisitions of us; adverse
changes in supplier rebates or
other purchasing incentives; risks related to the sale of corporate brand products;
security risks associated with our
information systems and technology products and services, such as
cyberattacks or other privacy or data security
breaches (including the October 2023 incident); effects of a highly competitive (including, without
limitation,
competition from third-party online commerce sites) and consolidating
market;
changes in the health care industry;
risks from expansion of customer purchasing power and multi-tiered
costing structures; increases in shipping costs
for our products or other service issues with our third-party shippers; general
global and domestic macro-economic
and political conditions, including inflation, deflation, recession, ongoing
wars, fluctuations in energy pricing and
the value of the U.S. dollar as compared to foreign currencies, and changes
to other economic indicators,
international trade agreements, potential trade barriers and terrorism; geopolitical
wars; failure to comply with
existing and future regulatory requirements; risks associated with the EU Medical
Device Regulation; failure to
comply with laws and regulations relating to health care fraud or other
laws and regulations; failure to comply with
laws and regulations relating to the collection, storage and processing of
sensitive personal information or standards
in electronic health records or transmissions; changes in tax legislation;
risks related to product liability, intellectual
property and other claims; risks associated with customs policies
or legislative import restrictions; risks associated
with disease outbreaks, epidemics, pandemics (such as the COVID-19
pandemic), or similar wide-spread public
health concerns and other natural or man-made disasters; risks associated with our
global operations; litigation
risks; new or unanticipated litigation developments and the status
of litigation matters; our dependence on our
senior management, employee hiring and retention, and our relationships
with customers, suppliers and
manufacturers; and disruptions in financial markets.
The order in which these factors appear should not be
construed to indicate their relative importance or priority.
We caution that these factors may not be exhaustive and that many of these factors are beyond our ability to control
or predict.
Accordingly, any forward-looking statements contained herein should not be relied upon as a prediction
of actual results.
We undertake no duty and have no obligation to update forward-looking statements except as
required by law.
45
Where You
Can Find Important Information
We may disclose important information through one or more of the following channels: SEC filings, public
conference calls and webcasts, press releases, the investor relations
page of our website (www.henryschein.com)
and the social media channels identified on the Newsroom page of our website.
Recent Developments
During the years ended December 30, 2023 and December 31, 2022 we
continued to experience a decrease in the
sales of PPE and COVID-19 test kits as compared to the comparable
prior-year periods, primarily due to lower
market pricing of PPE and lower market demand for COVID-19
test kits.
While the U.S. economy has recently experienced inflationary
pressures and strengthening of the U.S. dollar, their
impacts have not been material to our results of operations.
Though inflation impacts both our revenues and costs,
the depth and breadth of our product portfolio often allows us to offer lower-cost
national brand solutions or
corporate brand alternatives to our more price-sensitive customers who
are unwilling to absorb price increases, thus
positioning us to protect our gross profit.
Our consolidated financial statements reflect estimates and assumptions
made by us that affect, among other things,
our goodwill, long-lived asset and definite-lived intangible asset valuation;
inventory valuation; equity investment
valuation; assessment of the annual effective tax rate; valuation of deferred income
taxes and income tax
contingencies; the allowance for doubtful accounts; hedging activity; supplier
rebates; measurement of
compensation cost for certain share-based performance awards and cash bonus
plans; and pension plan
assumptions.
Cybersecurity Incident
In addition to immaterial and unrelated prior incidents at certain of
our subsidiaries, in October 2023 Henry Schein
experienced a cybersecurity incident that primarily affected the operations of our
North American and European
dental and medical distribution businesses.
Henry Schein One, our practice management software, revenue
cycle
management and patient relationship management solutions business, was
not affected, and our manufacturing
businesses were mostly unaffected. Once we became aware of the issue, we took steps
to assess, contain and
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 information
maintained on our systems belonging to
certain third parties and since that date we have notified affected and potentially affected 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 and related
applications, which has since been
remediated.
As described in “Management’s Discussion & Analysis – 2023 Compared to 2022, the incident
adversely impacted our financial results for the fourth quarter and full year 2023.
We also expect some short-term
residual impact on our financial results in 2024.
We maintain cybersecurity 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.
46
Executive-Level Overview
Henry Schein, Inc. is a solutions company for health care professionals powered
by a network of people and
technology.
We
believe we are the world’s largest provider of health care products and services primarily to office-
based dental and medical practitioners, as well as alternate sites of care.
We
serve more than one million customers
worldwide including dental practitioners, laboratories, physician practices, and
ambulatory surgery centers, as well
as government, institutional health care clinics and other alternate care clinics.
We
believe that we have a strong
brand identity due to our more than 91 years of experience distributing health
care products.
We are headquartered in Melville, New York,
employ approximately 25,000 people (of which approximately
11,500 are based outside of the United States) and have operations or affiliates in 33 countries and territories.
Our
broad global footprint has evolved over time through our organic success as well as
through contribution from
strategic acquisitions.
We
have established strategically located distribution centers around
the world to enable us to better serve our
customers and increase our operating efficiency.
This infrastructure, together with broad product and service
offerings at competitive prices, and a strong commitment to customer service, enables
us to be a single source of
supply for our customers’ needs.
While our primary go-to-market strategy is in our capacity as a distributor, we also market and sell our own
corporate brand portfolio of cost-effective, high-quality consumable merchandise products,
including in vitro
diagnostic devices, manufacture certain dental specialty products in
the areas of implants, orthodontics and
endodontics, manufacture drug products, and repackage/relabel prescription drugs
and/or devices.
We
have
achieved scale in these global businesses primarily through acquisitions, as
manufacturers of these products
typically do not utilize a distribution channel to serve customers.
We
conduct our business through two reportable segments: (i) health
care distribution and (ii) technology and
value-added services.
These segments offer different products and services to the same customer base.
Our global
dental businesses serve office-based dental practitioners, dental laboratories, schools, government
and other
institutions.
Our medical businesses serve physician offices, urgent care centers, ambulatory care sites,
emergency
medical technicians, dialysis centers, home health, federal and state governments
and large enterprises, such as
group practices and integrated delivery networks, among other providers
across a wide range of specialties.
The health care distribution reportable segment, combining our global dental and
medical operating segments,
distributes consumable products, small equipment, laboratory products, large equipment, equipment
repair services,
branded and generic pharmaceuticals, vaccines, surgical products, dental specialty
products (including implant,
orthodontic and endodontic products), diagnostic tests, infection-control products,
PPE products and vitamins.
Our global technology and value-added services business provides software, technology
and other value-added
services to health care practitioners.
Our technology business offerings include practice management software
systems for dental and medical practitioners.
Our value-added practice solutions include practice consultancy,
education, revenue cycle management and financial services on a non-recourse
basis, e-services, practice
technology, network and hardware services, as well as consulting, and continuing education services for
practitioners.
A key element to grow closer to our customers is our One Schein initiative, which
is a unified go-to-market
approach that enables practitioners to work synergistically with our supply chain,
equipment sales and service and
other value-added services, allowing our customers to leverage the
combined value that we offer through a single
program.
Specifically, One Schein provides customers with streamlined access to our comprehensive offering of
national brand products, our corporate brand products and proprietary specialty
products and solutions (including
implant, orthodontic and endodontic products).
In addition, customers have access to a wide range of services,
including software and other value-added services.
47
Industry Overview
In recent years, the health care industry has increasingly focused on cost containment.
This trend has benefited
distributors capable of providing a broad array of products and services at low
prices.
It also has accelerated the
growth of HMOs, group practices, other managed care accounts and collective buying
groups, which, in addition to
their emphasis on obtaining products at competitive prices, tend to favor distributors
capable of providing
specialized management information support.
We
believe that the trend towards cost containment has the potential
to favorably affect demand for technology solutions, including software, which can
enhance the efficiency and
facilitation of practice management.
Our operating results in recent years have been significantly affected by strategies
and transactions that we
undertook to expand our business, domestically and internationally, in part to address significant changes in the
health care industry, including consolidation of health care distribution companies, health care reform, trends
toward managed care, cuts in Medicare and collective purchasing arrangements.
Industry Consolidation
The health care products distribution industry, as it relates to office-based health care practitioners, is fragmented
and diverse.
The industry ranges from sole practitioners working out of
relatively small offices to group practices
or service organizations ranging in size from a few practitioners to a large number of practitioners who have
combined or otherwise associated their practices.
Due in part to the inability of office-based health care practitioners to store and manage
large quantities of supplies
in their offices, the distribution of health care supplies and small equipment to office-based health
care practitioners
has been characterized by frequent, small quantity orders, and a need for rapid,
reliable and substantially complete
order fulfillment.
The purchasing decisions within an office-based health care practice are typically
made by the
practitioner or an administrative assistant.
Supplies and small equipment are generally purchased from more
than
one distributor, with one generally serving as the primary supplier.
The trend of consolidation extends to our customer base.
Health care practitioners are increasingly seeking to
partner, affiliate or combine with larger entities such as hospitals, health systems, group practices or physician
hospital organizations.
In many cases, purchasing decisions for consolidated groups
are made at a centralized or
professional staff level; however, orders are delivered to the practitioners’ offices.
We
believe that consolidation within the industry will continue to
result in a number of distributors, particularly
those with limited financial, operating and marketing resources, seeking to
combine with larger companies that can
provide growth opportunities.
This consolidation also may continue to result in distributors seeking
to acquire
companies that can enhance their current product and service offerings or provide
opportunities to serve a broader
customer base.
Our approach to acquisitions and joint ventures has been to expand our role as
a provider of products and services
to the health care industry.
This trend has resulted in our expansion into service areas that complement
our existing
operations and provide opportunities for us to develop synergies with, and thus strengthen, the acquired
businesses.
As industry consolidation continues, we believe that we are positioned to
capitalize on this trend, as we believe we
have the ability to support increased sales through our existing infrastructure, although
there can be no assurances
that we will be able to successfully accomplish this.
We
also have invested in expanding our sales/marketing
infrastructure to include a focus on building relationships with decision
makers who do not reside in the office-
based practitioner setting.
As the health care industry continues to change, we continually evaluate possible
candidates for joint venture or
acquisition and intend to continue to seek opportunities to expand our
role as a provider of products and services to
the health care industry.
There can be no assurance that we will be able to successfully pursue
any such
opportunity or consummate any such transaction, if pursued.
If additional transactions are entered into or
consummated, we would incur merger and/or acquisition-related costs, and there
can be no assurance that the
integration efforts associated with any such transaction would be successful.
48
Aging Population and Other Market Influences
The health care products distribution industry continues to experience growth
due to the aging population,
increased health care awareness, the proliferation of medical technology
and testing, new pharmacological
treatments, and expanded third-party insurance coverage, partially offset by the effects of unemployment
on
insurance coverage.
In addition, the physician market continues to benefit from the
shift of procedures and
diagnostic testing from acute care settings to alternate-care sites, particularly
physicians’ offices.
According to the U.S. Census Bureau’s International Database, between 2023
and 2033, the 45 and older
population is expected to grow by approximately 11%.
Between 2023 and 2043, this age group is expected to grow
by approximately 21%.
This compares with expected total U.S. population growth
rates of approximately 6%
between 2023 and 2033
and approximately 11% between 2023 and 2043.
According to the U.S. Census Bureau’s International Database, in 2023
there are approximately seven million
Americans aged 85 years or older, the segment of the population most in need of long-term care
and elder-care
services.
By the year 2050, that number is projected to nearly triple to approximately
19 million.
The population
aged 65 to 84 years is projected to increase by approximately 23% during
the same period.
As a result of these market dynamics, annual expenditures for health
care services continue to increase in the
United States.
We believe that demand for our products and services will grow while continuing to be impacted by
current and future operating, economic, and industry conditions.
The Centers for Medicare and Medicaid Services,
or CMS, published “National Health Expenditure Data” indicating
that total national health care spending reached
approximately $4.5 trillion in 2022, or 17.3% of the nation’s gross domestic product, the benchmark
measure for
annual production of goods and services in the United States.
Health care spending is projected to reach
approximately $7.2 trillion by 2031, or 19.6% of the nation’s projected gross domestic product.
Government
Our businesses are generally subject to numerous laws and regulations that could
impact our financial performance,
and failure to comply with such laws or regulations could have a
material adverse effect on our business.
See “
” for a discussion of laws, regulations and governmental activity
that may affect our results of operations and financial condition.
49
Results of Operations
Refer to Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations
in
our 2022 Annual Report on Form 10-K for management’s discussion and analysis of financial condition and results
of operations for the fiscal year 2022 compared to fiscal year 2021.
The following tables summarize the significant components of our operating
results and cash flows:
Years
Ended
December 30,
December 31,
December 25,
2023
2022
2021
Operating results:
Net sales
$
12,339
$
12,647
$
12,401
Cost of sales
8,478
8,816
8,727
Gross profit
3,861
3,831
3,674
Operating expenses:
Selling, general and administrative
2,956
2,771
2,634
Depreciation and amortization
210
182
180
Restructuring and integration costs
80
131
8
Operating income
$
615
$
747
$
852
Other expense, net
$
(73)
$
(26)
$
(21)
Gain on sale of equity investment
-
-
7
Net income
436
566
660
Net income attributable to Henry Schein, Inc.
416
538
631
Years
Ended
December 30,
December 31,
December 25,
2023
2022
2021
Cash flows:
Net cash provided by operating activities
$
500
$
602
$
710
Net cash used in investing activities
(1,135)
(276)
(677)
Net cash provided by (used in) financing activities
701
(315)
(333)
50
Plans of Restructuring and Integration Costs
On August 1, 2022, we committed to a restructuring plan focused on
funding the priorities of the BOLD+1 strategic
plan, streamlining operations and other initiatives to increase efficiency.
We revised our previous expectations of
completion and we have extended this initiative through the end of 2024.
We are currently unable in good faith to
make a determination of an estimate of the amount or range of amounts
expected to be incurred in connection with
these activities, both with respect to each major type of cost associated
therewith and to the total cost, or an
estimate of the amount or range of amounts that will result in future
cash expenditures.
During the years ended December 30, 2023, December 31, 2022, and December
25, 2021, we recorded
restructuring costs of $80 million, $128 million, and $8 million, respectively.
The restructuring costs for these
periods primarily related to severance and employee-related costs,
impairment of intangible assets, accelerated
amortization of right-of-use lease assets and fixed assets, other lease exit
costs, and certain business exit costs
discussed below.
During the year ended December 30, 2023, in connection with our restructuring
plan, we recorded an impairment of
an intangible asset of $12 million related to a planned disposal of a non-U.S.
business.
The disposal is expected to
be completed in 2024.
This impairment is included in the $80 million of restructuring
charges discussed above.
During the year ended December 31, 2022, in connection with our
restructuring plan, we vacated one of the
buildings at our corporate headquarters in Melville, New York, which resulted in an accelerated amortization of a
right-of-use lease asset of $34 million.
We also initiated the disposal of a non-profitable U.S. business and
recorded related costs of $49 million, which primarily consisted of
impairment of intangible assets and goodwill,
inventory impairment, and severance and employee-related costs.
These expenses are included in the $128 million
of restructuring charges discussed above.
The disposal was completed during the first quarter of 2023.
On August 26, 2022, we acquired Midway Dental Supply.
In connection with this acquisition, during the year
ended December 31, 2022, we recorded integration costs of $3 million
related to one-time employee and other
costs, as well as restructuring charges of $9 million, which are included in the
$128 million of restructuring charges
discussed above.
On November 20, 2019, we committed to a contemplated restructuring
initiative intended to mitigate stranded costs
associated with the spin-off of our animal health business and to rationalize operations
and provide expense
efficiencies.
These activities were originally expected to be completed by
the end of 2020 but we extended them to
the end of 2021 in light of the changes to the business environment brought
on by the COVID-19 pandemic.
The
restructuring activities under this prior initiative were completed
in 2021.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
51
2023 Compared to 2022
Note: Percentages for Net Sales; Gross Profit; Operating Expenses; Other
 
38Expense, Net; and Income Taxes are
ITEM 2.
Propertiesbased on actual values and may not recalculate due to rounding.
Net Sales
We own or lease the following properties with more than 100,000 square feet:
Net sales were as follows:
 
Own% of
% of
Increase / (Decrease)
2023
Total
2022
Total
$
%
Health care distribution
(1)
Dental
$
7,539
61.1
%
$
7,473
59.1
%
$
66
0.9
%
Medical
3,994
32.4
4,451
35.2
(457)
(10.3)
Total health care distribution
11,533
93.5
11,924
94.3
(391)
(3.3)
Technology and value-added services
(2)
806
6.5
723
5.7
83
11.4
Total
$
12,339
100.0
$
12,647
100.0
$
(308)
(2.4)
The components of our sales growth were as follows:
Local Currency Growth/(Decline)
Total Local
Currency
Growth/(Decline)
Foreign
Exchange
Impact
Total Sales
Growth/(Decline)
Local Internal
Growth
Acquisition
Growth
Extra Week
Impact
Health care distribution
(1)
Dental Merchandise
(1.6)
%
4.2
%
(1.0)
%
1.6
%
0.1
%
1.7
%
Dental Equipment
(0.9)
1.1
(2.1)
(1.9)
-
(1.9)
Total Dental
(1.4)
3.4
(1.3)
0.7
0.2
0.9
Medical
(11.2)
2.2
(1.3)
(10.3)
-
(10.3)
Total Health Care Distribution
(5.1)
2.9
(1.2)
(3.4)
0.1
(3.3)
Technology and value-added services
(2)
7.2
5.0
(0.8)
11.4
-
11.4
Total
(4.4)
3.1
(1.2)
(2.5)
0.1
(2.4)
(1)
Consists of consumable products, dental specialty products (including implant, orthodontic and endodontic products), small
equipment, laboratory products, large equipment, equipment repair services, branded and generic pharmaceuticals, vaccines, surgical
products, diagnostic tests, infection-control products, PPE products and vitamins.
(2)
Consists of practice management software and other value-added products, which are distributed primarily to health care providers,
practice consultancy, education, revenue cycle management and financial services on a non-recourse basis, e-services, continuing
education services for practitioners, consulting and other services.
Global Sales
We report our results of operations on a 52 or
Approximate
Lease Expiration
Property
Location
Lease
Square Footage
Date
Corporate Headquarters
Melville, NY
Lease
185,000
July 2036
Corporate Headquarters
Melville, NY
Own
105,000
N/A
Office and Distribution Center
Fiumana-Predappio, Italy
Own
183,000
N/A
Office and Distribution Center
Tours, France
Own
166,000
N/A
Office and Distribution Center
Gillingham, United Kingdom
Lease/Own
165,000
June 2033
Office and Distribution Center
Eastern Creek, New South Wales, Australia
Lease
161,000
July 2030
Office and Distribution Center
Niagara 53 weeks per fiscal year basis ending on the Lake, Canadalast Saturday of
Lease
128,000
September 2021
Office and Distribution CenterDecember.
 
Bastian, VA
Own
108,000
N/A
Office and Distribution CenterThe year ended December 30, 2023, consisted of 52 weeks,
 
and the year ended, December 31, 2022
West Allis, WI
Lease
106,000
October 2027
Office and Distribution Centerconsisted of 53 weeks,
 
resulting in an extra week of sales.
Greer, SC
Lease
102,000
Global net sales for the year ended December 2028
Distribution Center30, 2023 decreased 2.4%.
 
The components of our sales growth are
Denver, PA
Lease
624,000
December 2032
Distribution Center
Indianapolis, IN
Lease
380,000
March 2022
Distribution Center
Sparks, NV
Lease
370,000
December 2021
Distribution Center
Indianapolis, IN
Own
287,000
N/A
Distribution Center
Grapevine, TX
Lease
242,000
July 2023
Distribution Center
Gallin, Germany
Own
215,000
N/A
Distribution Center
Jacksonville, FL
Lease
212,000
February 2026
Distribution Center
Heppenheim, Germany
Lease
194,000
March 2030
The properties listedpresented in the table above areabove.
The 4.4% decrease in our principal propertiesinternally generated local currency sales was primarily
 
used by our health care distributionattributable to a decrease in sales
segment.of PPE products and COVID-19 test kits.
 
In addition, we lease numerous other distribution, office, showroom, manufacturingFor the nine months ended September 30, 2023, the estimated
increase in
internally generated local currency sales, excluding PPE products
 
and sales space in
locations including the United States, Australia, Austria, Belgium, Brazil,COVID-19 test kits, was 3.5%.
 
Canada, Chile, China, the CzechHowever, as
Republic, France, Germany, Hong Kong SAR, Ireland, Israel, Italy, Japan, Liechtenstein, Luxembourg, Malaysia,
the Netherlands, New Zealand, Poland, Portugal, Singapore, South Africa,
Spain, Sweden, Switzerland, Thailand,
United Arab Emirates and the United Kingdom.
We believe that our properties are in good condition, are well maintained and are suitable and adequate to carry on
our business.
We have additional operating capacity at certain distribution center facilities.
ITEM 3.
Legal Proceedings
For a discussion of Legal Proceedings, see
of the Notes to the
Consolidated Financial Statements included under Item 8.
ITEM 4.
Mine Safety Disclosures
Not applicable.
39
PART
II
ITEM 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Our common stock is traded on the Nasdaq Global Select Market tier of
the Nasdaq Stock Market, or Nasdaq,
under the symbol HSIC.
On February 8, 2021, there were approximately 235 holders of record of our common
stock and the last reported
sales price was $70.78.
Purchases of Equity Securities by the Issuer
Our share repurchase program, announced on March 3, 2003, originally
allowed us to repurchase up to two million
shares pre-stock splits (eight million shares post-stock splits) of our common
stock, which represented
approximately 2.3% of the shares outstanding at the commencement of
the program.
Subsequent additional
increases totaling $3.7 billion, authorized by our Board of Directors,
to the repurchase program provide for a total
of $3.8 billion of shares of our common stock to be repurchased under this program.
As of December 26, 2020,
we had repurchased approximately $3.6 billion of common stock (75,563,289
shares)
under these initiatives, with $201.2 million available for future common stock
share repurchases.
As a result of the COVID-19 pandemic, as previously announced, we haveadverse impact of the cybersecurity incident during the quarter
 
temporarily suspended our share
repurchase program in an effort to preserve cash and exercise caution in this uncertain
period and due to certain
restrictions related to financial covenants in our credit facilities.
During the fiscal quarter ended December 26, 2020,30, 2023, our
internally generated local currency sales, excluding sales of PPE products
and COVID-19 test kits, on a full year
basis were flat compared to the prior year.
In addition, we did not make anyestimate that sales of PPE products and COVID-19
 
repurchases of our common stock.
The
maximum number of shares that could be purchased under this program
is determined at the end of each month
based on the closing price of our common stock at that time.
The maximum number of shares that could be
repurchased as of October 31, 2020, November 28, 2020, and December
26, 2020test kits were 3,164,694, 3,159,724approximately $713 million and
3,056,528, respectively.
Dividend Policy
We have not declared any cash or stock dividends on our common stock during fiscal years 2020 or 2019.
We
currently do not anticipate declaring any cash or stock dividends on our common
stock in the foreseeable future.
We intend to retain earnings to finance the expansion of our business and for general corporate purposes, including
our share repurchase program.
Any declaration of dividends will be at the discretion of our Board of
Directors and
will depend upon the earnings, financial condition, capital requirements,
level of indebtedness, contractual
restrictions with respect to payment of dividends and other factors.
Stock Performance Graph
The graph below compares the cumulative total stockholder return
on $100 invested, assuming the reinvestment of
all dividends, on December 26, 2015, the last trading day before the
beginning of our 2016 fiscal year, through the
end of our 2020 fiscal year with the cumulative total return on $100
invested$1,245 million for the same period in the Dow Jones
U.S. Health Care Indexyears ended December 30, 2023 and the Nasdaq Stock Market Composite Index.
December 31,
 
2022, respectively, representing an
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
hsicform10k20201226p40i0.gif
 
40
COMPARISON OF 5-YEAR CUMULATIVE TOTAL
RETURN
 
 
 
ASSUMES $100 INVESTED ON DECEMBER 26, 2015
ASSUMES DIVIDENDS REINVESTED
52
estimated decrease of $532 million or 42.7%
versus the prior year, with the $532 million net decrease year-over-
year representing 4.2%
of global net sales for the year ended December 26,30, 2023.
Dental
Dental net sales for the year ended December 31,30, 2023 increased 0.9%.
The components of our sales growth are
presented in the table above.
Our decrease in internally generated local currency sales for dental
merchandise was
primarily attributable to the negative impact of the cybersecurity incident.
Our sales decrease in internally
generated local currency for dental equipment was also primarily attributable
to the impact of the cybersecurity
incident.
We estimate that sales of PPE products were approximately $338 million and $448 million for the years ended
December 30, 2023 and December 31, 2022, respectively, representing an estimated decrease of $110 million or
24.5% versus the prior year, with the $110 million net decrease year-over-year representing 1.5% of dental net sales
for the year ended December 29,30, 2023.
The decrease in sales of PPE products is primarily due to lower
market
December 28,prices and loss of demand during the cybersecurity incident.
Our estimated internally generated local currency
December 26,
2015
2016
2017
2018
2019
2020
Henry Schein, Inc.sales, excluding PPE products were flat compared to the prior year.
 
$Medical
100.00Medical net sales for the year ended December 30, 2023 decreased 10.3%.
The components of our sales growth are
presented in the table above.
The internally generated local currency decrease in medical sales
is primarily
attributable to the impact of the cybersecurity incident that occurred
during the fourth quarter of the year ended
December 30, 2023 and to lower sales of PPE products and COVID-19
test kits and other point-of-care diagnostic
products.
We estimate that sales of PPE products and COVID-19 test kits were approximately $375 million and $797 million
for the years ended December 30, 2023 and December 31, 2022, respectively, representing an estimated decrease
of
$422 million or 52.9% versus the prior year, with the $422 million net decrease year-over-year representing 10.6%
of medical net sales for the year ended December 30, 2023.
The decrease in sales of these products is primarily due
to lower market prices of PPE, lower market demand of COVID-19
test kits, and loss of sales of both product
categories during the cybersecurity incident.
The estimated decrease in internally generated local currency
sales,
excluding PPE products and COVID-19 test kits was 2.2%.
Technology and value-added services
Technology and value-added services net sales for the year ended December 30, 2023 increased 11.4%.
The
components of our sales growth are presented in the table above.
During the year ended December 30, 2023, the
trend for sales of practice management software growth remains
strong as we continued to increase the number of
cloud-based users.
We also experienced increased demand for our revenue cycle management solutions and our
analytical products.
The increase in sales during the year ended December 30, 2023
was partially offset by the
expiration, during the year ended December 31, 2022, of a modestly profitable
government contract in one of our
value-added services businesses.
This segment of our business was largely unaffected by the cybersecurity incident
in the fourth quarter.
Gross Profit
Gross profit and gross margin percentages by segment and in total were as follows:
Gross
Gross
Increase / (Decrease)
2023
Margin %
2022
Margin %
$
96.58%
Health care distribution
$
88.973,312
28.7
%
$
99.203,357
28.2
%
$
109.44(45)
(1.3)
%
Technology and value-added services
549
68.0
474
65.5
75
15.7
Total
$
108.213,861
Dow Jones U.S. Health31.3
Care Index
$
100.003,831
97.0430.3
119.21$
124.8430
154.14
175.81
NASDAQ Stock Market
Composite Index
100.00
108.00
140.01
134.97
186.63
267.700.8
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
53
As a result of different practices of categorizing costs associated with distribution networks
throughout our
industry, our gross margins may not necessarily be comparable to other distribution companies.
Additionally, we
realize substantially higher gross margin percentages in our technology and value-added services
segment than in
our health care distribution segment.
These higher gross margins result from being both the developer and seller of
software products and services, as well as certain financial services.
The software industry typically realizes higher
gross margins to recover investments in research and development.
Within our health care distribution segment, gross profit margins may vary between the periods as a result of
the
changes in the mix of products sold as well as changes in our customer
mix.
For example, sales of our corporate
brand and certain specialty products achieve gross profit margins that are higher than average
total gross profit
margins of all products.
With respect to customer mix, sales to our large-group customers are typically completed
at lower gross margins due to the higher volumes sold as opposed to the gross margin on sales to office-based
practitioners, who normally purchase lower volumes.
Health care distribution gross profit for the year ended December 30, 2023
decreased compared to the prior-year-
period due to the decrease in sales resulting from the cybersecurity
incident and a reduction in sales of PPE
products and COVID-19 test kits, partially offset by gross profit from acquisitions
and gross margin expansion as a
result of a favorable impact of sales mix of higher-margin products.
Technology and value-added services gross profit increased as a result of a higher gross profit from internally
generated sales and gross profit from acquisitions, as well as an increase
in gross margin rates primarily due to
product mix and increases in productivity.
Operating Expenses
Operating expenses (consisting of selling, general and administrative
expenses; depreciation and amortization,
restructuring and integration costs) by segment and in total were as follows:
% of
% of
Respective
Respective
Increase
2023
Net Sales
2022
Net Sales
$
%
Health care distribution
$
2,842
24.6
%
$
2,738
23.0
%
$
104
3.8
%
Technology and value-added services
404
50.1
346
47.8
58
16.8
Total
$
3,246
26.3
%
$
3,084
24.4
%
$
162
5.3
%
The net increase in operating expenses is attributable to the following:
Operating Costs
Restructuring and
Integration Costs
Acquisitions
Total
Health care distribution
$
92
$
(55)
$
67
$
104
Technology and value-added services
5
4
49
58
Total
$
97
$
(51)
$
116
$
162
The increase in operating costs during the year ended December 30, 2023 includes
increases in payroll and payroll
related costs, travel, convention and consulting expenses in both of our reportable
segments and increased
acquisition expenses in our healthcare distribution segment.
During the year ended December 30, 2023, our
operating expenses were favorably impacted by the recognition of
a remeasurement gain of $18 million following
an acquisition of a controlling interest of a previously held equity
investment, and were negatively impacted by
restructuring, an impairment of capitalized costs of $27 million and impairment
of intangible assets of $7 million
within our health care distribution segment.
During the year ended December 30, 2023, we also incurred $11
million of direct costs, primarily professional fees, for the remediation of
the cybersecurity incident.
The
restructuring and integration costs are primarily related to severance and
employee-related costs, accelerated
amortization of right-of-use lease assets and fixed assets, and other lease exit
costs.
54
Other Expense, Net
Other expense, net was as follows:
Variance
2023
2022
$
%
Interest income
$
17
$
8
$
9
125.1
%
Interest expense
(87)
(35)
(52)
(148.7)
Other, net
(3)
1
(4)
n/a
Other expense, net
$
(73)
$
(26)
$
(47)
(172.9)
%
Interest income increased primarily due to increased interest rates.
Interest expense increased primarily due to
increased borrowings and increased interest rates.
Income Taxes
Our effective tax rate was 22.1% for the year ended December 30, 2023 compared to 23.5%
for the prior year.
In
each year, the difference between our effective and federal statutory tax rates primarily relates to state and foreign
income taxes and interest expense.
The Organization of Economic Co-Operation and Development (OECD) issued
technical and administrative
guidance on Pillar Two Model Rules in December 2021, which provides for a global minimum tax rate on the
earnings of large multinational businesses, on a country-by-country basis.
Effective January 1, 2024, the minimum
global tax rate is 15% for various jurisdictions pursuant to the Pillar Two framework.
Future tax reform resulting
from these developments may result in changes to long-standing tax principles,
which may adversely impact our
effective tax rate going forward or result in higher cash tax liabilities.
As we operate in jurisdictions which have
adopted Pillar 2, we are continuing to analyze the implications to effectively manage
the impact for 2024 and
beyond.
55
Liquidity and Capital Resources
Our principal capital requirements have included funding of acquisitions, purchases
of additional noncontrolling
interests, repayments of debt principal, the funding of working capital needs,
purchases of fixed assets and
repurchases of common stock.
Working capital requirements generally result from increased sales, special
inventory forward buy-in opportunities and payment terms for receivables
and payables.
Historically, sales have
tended to be stronger during the second half of the year and special inventory
forward buy-in opportunities have
been most prevalent just before the end of the year, and have caused our working capital requirements
to be higher
from the end of the third quarter to the end of the first quarter of
the following year.
We finance our business primarily through cash generated from our operations, revolving credit facilities and debt
placements.
Please see
for further information.
Our ability to generate sufficient cash flows from
operations is dependent on the continued demand of our customers
for our products and services, and access to
products and services from our suppliers.
Our business requires a substantial investment in working capital, which
is susceptible to fluctuations during the
year as a result of inventory purchase patterns and seasonal demands.
Inventory purchase activity is a function of
sales activity, special inventory forward buy-in opportunities and our desired level of inventory.
We anticipate
future increases in our working capital requirements.
We finance our business to provide adequate funding for at least 12 months.
Funding requirements are based on
forecasted profitability and working capital needs, which, on occasion, may
change.
Consequently, we may change
our funding structure to reflect any new requirements.
We believe that our cash and cash equivalents, our ability to access private debt markets and public equity markets,
and our available funds under existing credit facilities provide us with
sufficient liquidity to meet our currently
foreseeable short-term and long-term capital needs.
Our acquisition strategy is focused on investments in companies that
add new customers and sales teams, increase
our geographic footprint (whether entering a new country, such as emerging markets, or building scale where we
have already invested in businesses), and finally, those that enable us to access new products and technologies.
As
part of our BOLD+1 Strategic Plan, including pursuing focused mergers and acquisitions,
during the year ended
December 30, 2023 we have announced acquisitions of companies specializing
in implant systems, clear aligners,
homecare medical products delivered directly to patients, and dental practice
transition services.
Net cash provided by operating activities was $500 million for the
year ended December 30, 2023, compared to net
cash provided by operating activities of $602 million for the prior year.
The net change of $102 million was
primarily attributable to lower cash net income.
During the quarter ended December 30, 2023, the cybersecurity
incident had several offsetting impacts to the operating cash flows from our working
capital, net of acquisitions,
including a decrease in operating cash flows from accounts receivable
due to delayed timing of billings and limited
collection efforts resulting from the impact of the cybersecurity incident, and an increase
in operating cash flows
resulting from reduced inventory purchases.
Net cash used in investing activities was $1,135 million for the
year ended December 30, 2023, compared to net
cash used in investing activities of $276 million for the prior year.
The net change of $859 million was primarily
attributable to increased payments for equity investments and business acquisitions,
and increased purchases of
fixed assets resulting from our continued investment in our facilities and operations.
Net cash provided by financing activities was $701 million for the year
ended December 30, 2023, compared to net
cash used in financing activities of $315 million for the prior year.
The net change of $1,016 million was primarily
due to increased net borrowings from debt
to finance our investments, partially offset by decreased repurchases of
common stock.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
41
ITEM 6.
Selected Financial Data
The following selected financial data, with respect to our financial position
and results of operations for each of the
five fiscal years in the period ended December 26, 2020, set forth below, has been derived from, should be read in
conjunction with and is qualified in its entirety by reference to, our consolidated
financial statements and notes
thereto.
The selected financial data presented below should also be read
in conjunction with
,
“
” and
,
“
.”
Years ended
December 26,
December 28,
December 29,
December 30,
December 31,
2020
2019
2018
2017
2016
(in thousands, except per share data)
Income Statement Data:
Net sales
$
10,119,141
$
9,985,803
$
9,417,603
$
8,883,438
$
8,218,885
Gross profit
2,814,343
3,090,886
2,910,747
2,746,662
2,605,907
Selling, general and administrative expenses
2,246,947
2,357,920
2,217,273
2,071,576
1,975,445
Litigation settlements
-
-
38,488
5,325
-
Restructuring costs (1)
32,093
14,705
54,367
-
38,621
Operating income
535,303
718,261
600,619
669,761
591,841
Other expense, net
(35,408)
(37,954)
(63,783)
(39,967)
(18,705)
Income from continuing operations before taxes, equity
in earnings of affiliates and noncontrolling interests
499,895
680,307
536,836
629,794
573,136
Income taxes (2)
(95,374)
(159,515)
(107,432)
(308,975)
(169,311)
Equity in earnings of affiliates
12,344
17,900
21,037
15,293
17,110
Net gain (loss) on sale of equity investments (3)
1,572
186,769
-
(17,636)
-
Net income from continuing operations
418,437
725,461
450,441
318,476
420,935
Income (loss) from discontinued operations
986
(6,323)
111,685
140,817
135,460
Net income
419,423
719,138
562,126
459,293
556,395
Less: Net income attributable to noncontrolling interests
(15,629)
(24,770)
(19,724)
(25,304)
(19,651)
Less: Net (income) loss attributable to noncontrolling
interests from discontinued operations
-
366
(6,521)
(27,690)
(29,966)
Net income attributable to Henry Schein, Inc.
$
403,794
$
694,734
$
535,881
$
406,299
$
506,778
Amounts attributable to Henry Schein, Inc.:
Continuing operations
402,808
700,691
430,717
293,172
401,284
Discontinued operations
986
(5,957)
105,164
113,127
105,494
Net income attributable to Henry Schein, Inc.
$
403,794
$
694,734
$
535,881
$
406,299
$
506,778
Earnings (loss) per share attributable to
Henry Schein, Inc.:
From continuing operations:
Basic
$
2.83
$
4.74
$
2.82
$
1.87
$
2.48
Diluted
2.81
4.69
2.80
1.85
2.45
From discontinued operations:
Basic
$
0.01
$
(0.04)
$
0.69
$
0.72
$
0.65
Diluted
0.01
(0.04)
0.68
0.72
0.64
Earnings per share attributable to Henry Schein, Inc.:
Basic
$
2.83
$
4.70
$
3.51
$
2.59
$
3.14
Diluted
2.82
4.65
3.49
2.57
3.10
Weighted-average common shares outstanding:
Basic
142,504
147,817
152,656
156,787
161,641
Diluted
143,404
149,257
153,707
158,208
163,723
42
Years ended
December 26,
December 28,
December 29,
December 30,
December 31,
2020
2019
2018
2017
2016
(in thousands)
Net Sales by Market Data:
Health care distribution (4):
Dental
$
5,912,593
$
6,415,865
$
6,347,998
$
6,047,811
$
5,554,296
Medical
3,617,017
2,973,586
2,661,166
2,497,994
2,337,661
Total health care distribution
9,529,610
9,389,451
9,009,164
8,545,805
7,891,957
Technology and value-added services (5)
514,258
515,085
408,439
337,633
326,928
Total excluding Corporate TSA revenues
10,043,868
9,904,536
9,417,603
8,883,438
8,218,885
Corporate TSA revenues (6)
75,273
81,267
-
-
-
Total
$
10,119,141
$
9,985,803
$
9,417,603
$
8,883,438
$
8,218,885
As of
December 26,
December 28,
December 29,
December 30,
December 31,
2020
2019
2018
2017
2016
(in thousands)
Balance Sheet Data:
Total assets
$
7,772,532
$
7,151,101
$
8,500,527
$
7,863,995
$
6,811,763
Long-term debt
515,773
622,908
980,344
884,227
689,626
Redeemable noncontrolling interests
327,699
287,258
219,724
465,584
285,567
Stockholders' equity
3,984,385
3,630,137
3,541,788
2,824,410
2,800,804
1)
Restructuring costs for the year ended December 26, 2020 consist primarily of severance costs, including severance pay and benefits
of $25.8 million, facility closing costs of $5.9 million and other costs of $0.4 million.
Restructuring costs for the year ended
December 28, 2019 consist primarily of severance costs, including severance pay and benefits of $13.8 million and facility closing
costs of $0.9 million.
Restructuring costs for the year ended December 29, 2018 consist primarily of severance costs, including
severance pay and benefits of $50.2 million, facility closing costs of $3.2 million and other costs of $1.0 million.
Restructuring costs
for the year ended December 31, 2016 consist primarily of severance costs, including severance pay and benefits of $33.8 million,
facility closing costs of $3.2 million and other costs of $1.6 million.
See “Management’s Discussion and Analysis of Financial
Condition and Results of Operations – Plans of Restructuring” herein and the consolidated financial statements and related notes
contained in ITEM 8.
(2)
In 2018 we recorded (a) a $10.0 million net credit to income tax representing a change in our estimate of the transition tax on
deemed repatriated foreign earnings, (b) a one-time income tax charge of $3.9 million to income tax as a result of a reorganization of
legal entities related to Henry Schein One, (c) an income tax credit of $13.9 million ($10.6 million attributable to Henry Schein, Inc.)
resulting from a legal entity reorganization outside of the United States and (d) a one-time income tax charge of $3.1 million as a
result of the reorganization of legal entities completed in preparation for the Animal Health Spin-off.
In 2017 we recorded a one-
time income tax charge of $140 million related to the transition tax on deemed repatriated foreign earnings and a one-time income
tax charge of $3.0 million for the revaluation of deferred taxes associated with U.S. tax reform legislation.
(3)
During the fourth quarter of 2019, we sold an equity investment in Hu-Friedy Mfg. Co., LLC, a manufacturer of dental instruments
and infection prevention solutions.
In the fourth quarter of 2020 we received contingent proceeds of $2.1 million from the 2019 sale
of Hu-Friedy resulting in the recognition of an additional after-tax gain of $1.6 million.
Our investment was non-controlling, we
were not involved in running the business and had no representation on the board of directors.
During the fourth quarter of 2019, we
also sold certain other equity investments.
During 2017 we sold our equity ownership in E4D Technologies resulting in a loss of
approximately $17.6 million.
There was no tax benefit recognized related to this loss.
(4)
Consists of consumable products, small equipment, laboratory products, large equipment, equipment repair services, branded and
generic pharmaceuticals, vaccines, surgical products, diagnostic tests, personal protective equipment, infection-control products and
vitamins.
(5)
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.
(6)
Corporate TSA revenues represents sales of certain products to Covetrus under the transition services agreement entered into in
connection with the Animal Health Spin-off, which ended in December 2020.
43
ITEM 7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Cautionary Note Regarding Forward-Looking Statements
In accordance with the “Safe Harbor” provisions of the Private Securities
Litigation Reform Act of 1995, we
provide the following cautionary remarks regarding important factors
that, among others, could cause future results
to differ materially from the forward-looking statements, expectations and assumptions
expressed or implied
herein.
All forward-looking statements made by us are subject to
risks and uncertainties and are not guarantees of
future performance.
These forward-looking statements involve known and unknown risks, uncertainties
and other
factors that may cause our actual results, performance and achievements
or industry results to be materially
different from any future results, performance or achievements expressed or implied by such
forward-looking
statements.
These statements are generally identified by the use of such
terms as “may,” “could,” “expect,”
“intend,” “believe,” “plan,” “estimate,” “forecast,” “project,” “anticipate,”
“to be,” “to make” or other comparable
terms.
Factors that could cause or contribute to such differences include, but are not limited
to, those discussed in
this Annual Report on Form 10-K, and in particular the risks discussed under
the caption “Risk Factors” in Item 1A
of this report and those that may be discussed in other documents we file with
the Securities and Exchange
Commission (SEC).
Forward looking statements include the overall impact of the Novel Coronavirus
Disease 2019
(COVID-19) on the Company, its results of operations, liquidity, and financial condition (including any estimates
of the impact on these items), the rate and consistency with which dental
and other practices resume or maintain
normal operations in the United States and internationally, expectations regarding personal protective equipment
(“PPE”) and COVID-19 related product sales and inventory levels and whether
additional resurgences of the virus
will adversely impact the resumption of normal operations, the impact
of restructuring programs as well as of any
future acquisitions, and more generally current expectations regarding
performance in current and future periods.
Forward looking statements also include the (i) ability of the Company
to make additional testing available, the
nature of those tests and the number of tests intended to be made available
and the timing for availability, the nature
of the target market, as well as the efficacy or relative efficacy of the test results given that the test efficacy has
not
been, or will not have been, independently verified under normal FDA procedures
and (ii) potential for the
Company to distribute the COVID-19 vaccines and ancillary supplies.
Risk factors and uncertainties that could cause actual results to differ materially from
current and historical results
include, but are not limited to: risks associated with COVID-19,
as well as other disease outbreaks, epidemics,
pandemics, or similar wide spread public health concerns and other natural
disasters or acts of terrorism; our
dependence on third parties for the manufacture and supply of our products;
our ability to develop or acquire and
maintain and protect new products (particularly technology products) and
technologies that achieve market
acceptance with acceptable margins; transitional challenges associated with acquisitions,
dispositions and joint
ventures, including the failure to achieve anticipated synergies/benefits; financial
and tax risks associated with
acquisitions, dispositions and joint ventures; certain provisions
in our governing documents that may discourage
third-party acquisitions of us; effects of a highly competitive (including, without
limitation, competition from third-
party online commerce sites) and consolidating market; the potential repeal or
judicial prohibition on
implementation of the Affordable Care Act; changes in the health care industry; risks from
expansion of customer
purchasing power and multi-tiered costing structures; increases in shipping costs
for our products or other service
issues with our third-party shippers; general global macro-economic and political
conditions, including
international trade agreements and potential trade barriers; failure to
comply with existing and future regulatory
requirements; risks associated with the EU Medical Device Regulation; failure
to comply with laws and regulations
relating to health care fraud or other laws and regulations; failure to comply with
laws and regulations relating to
the confidentiality of sensitive personal information or standards in electronic
health records or transmissions;
changes in tax legislation; litigation risks; new or unanticipated litigation
developments and the status of litigation
matters; cyberattacks or other privacy or data security breaches; risks associated
with our global operations; our
dependence on our senior management, as well as employee hiring and retention;
and disruptions in financial
markets. The order in which these factors appear should not be construed
to indicate their relative importance or
priority.
44
We caution that these factors may not be exhaustive and that many of these factors are beyond our ability to control
or predict.
Accordingly, any forward-looking statements contained herein should not be relied upon as a prediction
of actual results.
We undertake no duty and have no obligation to update forward-looking statements.
Where You
Can Find Important Information
We may disclose important information through one or more of the following channels: SEC filings, public
conference calls and webcasts, press releases, the investor relations
page of our website (www.henryschein.com)
and the social media channels identified on the Newsroom page of our website.
Recent Developments
COVID-19 Pandemic
In March 2020, the World Health Organization declared COVID-19 a pandemic. The COVID-19 pandemic has
negatively impacted the global economy, disrupted global supply chains and created significant volatility and
disruption of global financial markets. In response, many countries implemented
business closures and restrictions,
stay-at-home and social distancing ordinances and similar measures
to combat the pandemic, which significantly
impacted global business and dramatically reduced demand for dental
products and certain medical products
beginning in the second quarter
of 2020. Demand increased in the second half of 2020 resulting
in slight growth
over the prior year driven by sales of PPE and COVID-19 related products.
Our consolidated financial statements reflect estimates and assumptions
made by us that affect, among other things,
our goodwill, long-lived asset and definite-lived intangible asset valuation;
inventory valuation; equity investment
valuation; assessment of the annual effective tax rate; valuation of deferred income
taxes and income tax
contingencies; the allowance for doubtful accounts; hedging activity; vendor
rebates; measurement of
compensation cost for certain share-based performance awards and cash bonus
plans; and pension plan
assumptions.
Due to the significant uncertainty surrounding the future impact of
COVID-19, our judgments
regarding estimates and impairments could change in the future.
In addition, the impact of COVID-19 had a
material adverse effect on our business, results of operations and cash flows, primarily in
the second quarter of
2020.
In the latter half of the second quarter, dental and medical practices began to re-open worldwide, and
continued to do so during the second half of 2020.
However, patient volumes have remained below pre-COVID-19
levels and certain regions in the U.S. and internationally are experiencing an
increase in COVID-19 cases.
As such,
there is an ongoing risk that the COVID-19 pandemic may again materially
adversely effect our business, results of
operations and cash flows and may result in a material adverse effect on our financial
condition and liquidity.
However, the extent of the potential impact cannot be reasonably estimated at this time.
As part of a broad-based effort to support plans for the long-term health of our business
and to strengthen our
financial flexibility, we implemented cost reduction measures that included certain reductions in payroll,
substantially decreased capital expenditures, reduced corporate spending
and eliminated certain non-strategic
targeted expenditures. As our markets began to recover,
we substantially ended most of those temporary expense-
reduction initiatives during the second half of 2020.
Corporate Transactions
During the fourth quarter of 2019, we sold an equity investment
in Hu-Friedy Mfg. Co., LLC (“Hu-Friedy”), a
manufacturer of dental instruments and infection prevention solutions.
Our investment was non-controlling, we
were not involved in running the business and had no representation
on the board of directors.
During the fourth
quarter of 2019, we also sold certain other equity investments.
In the aggregate, the sales of these investments
resulted in a pre-tax gain in 2019 of approximately $250.2 million and an after-tax
gain of approximately $186.8
million.
In the fourth quarter of 2020 we received contingent proceeds of
$2.1 million from the 2019 sale of Hu-
Friedy resulting in the recognition of an additional after-tax gain of $1.6
million.
On February 7, 2019 (the “Distribution Date”), we completed the separation
(the “Separation”) and subsequent
merger of our animal health business (the “Henry Schein Animal Health Business”)
with Direct Vet Marketing, Inc.
(d/b/a Vets
First Choice, “Vets First Choice”) (the “Merger”).
This was accomplished by a series of transactions
45
among us, Vets
First Choice, Covetrus, Inc. (f/k/a HS Spinco, Inc. “Covetrus”), a
wholly owned subsidiary of ours
prior to the Distribution Date, and HS Merger Sub, Inc., a wholly owned subsidiary
of Covetrus (“Merger
Sub”).
In connection with the Separation, we contributed, assigned
and transferred to Covetrus certain applicable
assets, liabilities and capital stock or other ownership interests relating
to the Henry Schein Animal Health
Business.
On the Distribution Date, we received a tax-free distribution of $1,120
million from Covetrus pursuant to
certain debt financing incurred by Covetrus.
On the Distribution Date and prior to the Animal Health Spin-off,
Covetrus issued shares of Covetrus common stock to certain institutional
accredited investors (the “Share Sale
Investors”) for $361.1 million (the “Share Sale”).
The proceeds of the Share Sale were paid to Covetrus and
distributed to us.
Subsequent to the Share Sale, we distributed, on a pro rata basis,
all of the shares of the common
stock of Covetrus held by us to our stockholders of record as of the close of
business on January 17, 2019 (the
“Animal Health Spin-off”).
After the Share Sale and Animal Health Spin-off, Merger Sub consummated the
Merger whereby it merged with and into Vets
First Choice, with Vets First Choice surviving the Merger as a
wholly owned subsidiary of Covetrus.
Immediately following the consummation of the Merger, on a fully diluted
basis, (i) approximately 63% of the shares of Covetrus common stock were (a) owned
by our stockholders and the
Share Sale Investors, and (b) held by certain employees of the Henry Schein
Animal Health Business (in the form
of certain equity awards), and (ii) approximately 37% of the shares of Covetrus
common stock were (a) owned by
stockholders of Vets
First Choice immediately prior to the Merger, and (b) held by certain employees of Vets First
Choice (in the form of certain equity awards).
After the Separation and the Merger, we no longer beneficially
owned any shares of Covetrus common stock and, following the Distribution
Date, will not consolidate the
financial results of Covetrus for the purpose of our financial reporting.
Following the Separation and the Merger,
Covetrus was an independent, publicly traded company on the Nasdaq Global Select
Market.
Executive-Level Overview
We believe we are the world’s largest
provider of health care products and services primarily to office-based dental
and medical practitioners, as well as alternate sites of care.
We serve more than one million customers worldwide
including dental practitioners and laboratories and physician practices, as well
as government, institutional health
care clinics and other alternate care clinics.
We believe that we have a strong brand identity due to our more than
88 years of experience distributing health care products.
We are headquartered in Melville, New York,
employ more than 19,000 people (of which more than 9,800 are
based outside the United States) and have operations or affiliates in 31 countries and territories,
including the
United States, Australia, Austria, Belgium, Brazil, Canada, Chile, China,
the Czech Republic, France, Germany,
Hong Kong SAR, Ireland, Israel, Italy, Japan, Liechtenstein, Luxembourg, Malaysia, the Netherlands, New
Zealand, Poland, Portugal, Singapore, South Africa, Spain, Sweden, Switzerland,
Thailand, United Arab Emirates
and the United Kingdom.
We have established strategically located distribution centers to enable us to better serve our customers and
increase our operating efficiency.
This infrastructure, together with broad product and service offerings at
competitive prices, and a strong commitment to customer service, enables us
to be a single source of supply for our
customers’ needs.
Our infrastructure also allows us to provide convenient ordering
and rapid, accurate and
complete order fulfillment.
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.
The health care distribution reportable segment aggregates our global dental
and medical operating segments.
This
segment distributes consumable products, small equipment, laboratory products,
large equipment, equipment repair
services, branded and generic pharmaceuticals, vaccines, surgical products, diagnostic
tests, infection-control
products and vitamins.
Our global dental group serves office-based dental practitioners, dental laboratories, schools
and other institutions.
Our global medical group serves office-based medical practitioners, ambulatory
surgery
centers, other alternate-care settings and other institutions.
Our global technology and value-added services group provides software,
technology and other value-added
services to health care practitioners.
Our technology group offerings include practice management software
systems for dental and medical practitioners.
Our value-added practice solutions include financial services on a
46
non-recourse basis, e-services, practice technology, network and hardware services, as well as continuing education
services for practitioners.
Industry Overview
In recent years, the health care industry has increasingly focused on cost containment.
This trend has benefited
distributors capable of providing a broad array of products and services at low
prices.
It also has accelerated the
growth of HMOs, group practices, other managed care accounts and collective buying
groups, which, in addition to
their emphasis on obtaining products at competitive prices, tend to favor distributors
capable of providing
specialized management information support.
We believe that the trend towards cost containment has the potential
to favorably affect demand for technology solutions, including software, which can
enhance the efficiency and
facilitation of practice management.
Our operating results in recent years have been significantly affected by strategies
and transactions that we
undertook to expand our business, domestically and internationally, in part to address significant changes in the
health care industry, including consolidation of health care distribution companies, health care reform, trends
toward managed care, cuts in Medicare and collective purchasing arrangements.
Our current and future results have been and could be impacted by the current
economic environment and
uncertainty, particularly impacting overall demand for our products and services.
Industry Consolidation
The health care products distribution industry, as it relates to office-based health care practitioners, is fragmented
and diverse.
The industry ranges from sole practitioners working out of
relatively small offices to group practices
or service organizations ranging in size from a few practitioners to a large
number of practitioners who have
combined or otherwise associated their practices.
Due in part to the inability of office-based health care practitioners to store and manage
large quantities of supplies
in their offices, the distribution of health care supplies and small equipment to office-based health
care practitioners
has been characterized by frequent, small quantity orders, and a need for rapid,
reliable and substantially complete
order fulfillment.
The purchasing decisions within an office-based health care practice are typically
made by the
practitioner or an administrative assistant.
Supplies and small equipment are generally purchased from more
than
one distributor, with one generally serving as the primary supplier.
The trend of consolidation
extends to our customer base.
Health care practitioners are increasingly seeking to
partner, affiliate or combine with larger entities such as hospitals, health systems, group practices or physician
hospital organizations.
In many cases, purchasing decisions for consolidated groups
are made at a centralized or
professional staff level; however, orders are delivered to the practitioners’ offices.
We believe that consolidation within the industry will continue to result in a number of distributors, particularly
those with limited financial, operating and marketing resources, seeking to
combine with larger companies that can
provide growth opportunities.
This consolidation also may continue to result in distributors seeking
to acquire
companies that can enhance their current product and service offerings or provide
opportunities to serve a broader
customer base.
Our trend with regard to acquisitions and joint ventures has been to expand
our role as a provider of products and
services to the health care industry.
This trend has resulted in our expansion into service areas that complement
our
existing operations and provide opportunities for us to develop synergies with, and
thus strengthen, the acquired
businesses.
As industry consolidation continues, we believe that we are positioned
to capitalize on this trend, as we believe we
have the ability to support increased sales through our existing infrastructure, although
there can be no assurances
that we will be able to successfully accomplish this.
We also have invested in expanding our sales/marketing
infrastructure to include a focus on building relationships with decision
makers who do not reside in the office-
based practitioner setting.
47
As the health care industry continues to change, we continually evaluate possible
candidates for merger and joint
venture or acquisition and intend to continue to seek opportunities to expand
our role as a provider of products and
services to the health care industry.
There can be no assurance that we will be able to successfully pursue
any such
opportunity or consummate any such transaction, if pursued.
If additional transactions are entered into or
consummated, we would incur merger and/or acquisition-related costs, and there
can be no assurance that the
integration efforts associated with any such transaction would be successful.
In response to the COVID-19
pandemic, we had taken a range of actions to preserve cash, including
the temporary suspension of significant
acquisition activity.
During the third and fourth quarters of 2020, as global conditions
improved, we resumed our
acquisition strategy.
Aging Population and Other Market Influences
The health care products distribution industry continues to experience growth
due to the aging population,
increased health care awareness, the proliferation of medical technology
and testing, new pharmacology treatments
and expanded third-party insurance coverage, partially offset by the effects of unemployment on insurance
coverage.
In addition, the physician market continues to benefit from
the shift of procedures and diagnostic testing
from acute care settings to alternate-care sites, particularly physicians’ offices.
According to the U.S. Census Bureau’s International Data Base, in 2020 there were more than six and a half`
million Americans aged 85 years or older, the segment of the population most in need of long-term care
and elder-
care services.
By the year 2050, that number is projected to nearly triple to
approximately 19 million.
The
population aged 65 to 84 years is projected to increase by approximately 36%
during the same time period.
As a result of these market dynamics, annual expenditures for health care
services continue to increase in the
United States.
We believe that demand for our products and services will grow, while continuing to be impacted by
current and future operating, economic and industry conditions.
The Centers for Medicare and Medicaid Services,
or CMS,
published “National Health Expenditure Projections 2019-2028”
indicating that total national health care
spending reached approximately $3.6 trillion in 2018, or 17.7% of the
nation’s gross domestic product, the
benchmark measure for annual production of goods and services in the United
States.
Health care spending is
projected to reach approximately $6.2 trillion in 2028,
approximately 19.7%
of the nation’s projected gross
domestic product.
48
Results of Operations
The following tables summarize the significant components of our operating
results and cash flows from continuing
operations for each of the three years ended December 26, 2020, December
28, 2019 and December 29, 2018 (in
thousands):
Years
Ended
December 26,
December 28,
December 29,
2020
2019
2018
Operating results:
Net sales
$
10,119,141
$
9,985,803
$
9,417,603
Cost of sales
7,304,798
6,894,917
6,506,856
Gross profit
2,814,343
3,090,886
2,910,747
Operating expenses:
Selling, general and administrative
2,246,947
2,357,920
2,217,273
Litigation settlements
-
-
38,488
Restructuring costs
32,093
14,705
54,367
Operating income
$
535,303
$
718,261
$
600,619
Other expense, net
$
(35,408)
$
(37,954)
$
(63,783)
Net gain on sale of equity investments
1,572
186,769
-
Net income from continuing operations
418,437
725,461
450,441
Income (loss) from discontinued operations
986
(6,323)
111,685
Net income attributable to Henry Schein, Inc.
403,794
694,734
535,881
Years
Ended
December 26,
December 28,
December 29,
2020
2019
2018
Cash flows:
Net cash provided by operating activities from continuing operations
$
593,519
$
820,478
$
450,955
Net cash used in investing activities from continuing operations
(115,019)
(422,309)
(164,324)
Net cash used in financing activities from continuing operations
(181,794)
(363,351)
(402,173)
Plans of Restructuring
On July 9, 2018, we committed to an initiative to rationalize our operations and
provide expense
efficiencies.
These actions allowed us to execute on our plan to reduce our cost structure
and fund new initiatives
to drive growth under our 2018 to 2020 strategic plan.
This initiative resulted in the elimination of approximately
4% of our workforce and the closing of certain facilities.
On November 20, 2019, we committed to a contemplated initiative, intended
to mitigate stranded costs associated
with the Animal Health Spin-off and to rationalize operations and to provide expense efficiencies.
These activities
were originally expected to be completed by the end of 2020.
As a result of the business environment brought on
by the COVID-19 pandemic, we are continuing our restructuring activities
into 2021. We are currently unable in
good faith to make a determination of an estimate of the amount or range of
amounts expected to be incurred in
connection with these activities in 2021, both with respect to each major
type of cost associated therewith and with
respect to the total cost, or an estimate of the amount or range of amounts
that will result in future cash
expenditures.
During the years ended December 26, 2020, December 28, 2019, and December
29, 2018 we recorded restructuring
charges of $32.1 million, $14.7 million and $54.4 million, respectively.
The costs associated with these
restructurings are included in a separate line item, “Restructuring costs” within
our consolidated statements of
income.
49
2020 Compared to 2019
Net Sales
Net sales for 2020 and 2019 were as follows (in thousands):
% of
% of
Increase / (Decrease)
2020
Total
2019
Total
$
%
Health care distribution
(1)
Dental
$
5,912,593
58.4
%
$
6,415,865
64.2
%
$
(503,272)
(7.8)
%
Medical
3,617,017
35.8
2,973,586
29.8
643,431
21.6
Total health care distribution
9,529,610
94.2
9,389,451
94.0
140,159
1.5
Technology and value-added services
(2)
514,258
5.1
515,085
5.2
(827)
(0.2)
Total excluding Corporate TSA revenues
10,043,868
99.3
9,904,536
99.2
139,332
1.4
Corporate TSA revenues
(3)
75,273
0.7
81,267
0.8
(5,994)
(7.4)
Total
$
10,119,141
100.0
$
9,985,803
100.0
$
133,338
1.3
(1)
Consists of consumable products, small equipment, laboratory products, large equipment, equipment repair services, branded and generic
pharmaceuticals, vaccines, surgical products, diagnostic tests, infection-control products, personal protective equipment and vitamins.
(2)
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.
(3)
Corporate TSA revenues represents sales of certain products to Covetrus under the transition services agreement entered into in connection
with the Animal Health Spin-off, which ended in December 2020.
The 1.3% increase in net sales for the year ended December 26, 2020
includes an increase of 1.4% local currency
growth (0.8% increase in internally generated revenue and 0.6% growth
from acquisitions) partially offset by a
decrease of 0.1% related to foreign currency exchange.
Excluding sales of products under the transition services
agreement with Covetrus, our net sales increased 1.4%, including local
currency growth of 1.5% (0.9% increase in
internally generated revenue and 0.6%
growth from acquisitions) partially offset by a decrease of 0.1% related
to
foreign currency exchange.
Sales for the year ended December 26, 2020 benefited from sales of
PPE and COVID-
19 related products of approximately $1,298 million, an increase of approximately
208% versus the prior year.
Future PPE and COVID-19 related product sales may be lower than what
we have experienced in 2020, which were
driven by rising positive COVID-19 cases and practices seeking to ensure
adequate supply.
The 7.8% decrease in dental net sales for the year ended December
26, 2020 includes a decrease of 7.6% in local
currencies (8.0% decrease in internally generated revenue,
partially offset by 0.4%
growth from acquisitions) and a
decrease of 0.2% related to foreign currency exchange.
The 7.6% decrease in local currency sales was due to
decreases in dental equipment sales and service revenues of 12.5%,
all of which is attributable to a decrease in
internally generated revenue and a decrease in dental consumable merchandise
sales of 6.1% (6.5% decrease in
internally generated revenue,
partially offset by 0.4% growth from acquisitions).
The COVID-19 pandemic
adversely impacted our dental business beginning in mid-March of 2020
as many dental offices progressively
closed or began seeing a limited number of patients, resulting in a decrease
of 41.2% in second quarter dental
revenues versus the same period in the prior year.
However, in the second half of the year ended December 26,
2020, our dental sales began to improve as dental practices resumed activities
and patient traffic increased.
Global
dental sales for the year ended December 26, 2020 benefited from sales of
PPE and COVID-19 related products of
approximately $491 million, an increase of approximately 72% versus the
prior year.
The 21.6% increase in medical net sales for the year ended December
26, 2020 includes an increase of 21.6% local
currency growth (20.7% increase in internally generated revenue and 0.9%
growth from acquisitions).
The
COVID-19 pandemic adversely impacted our medical business beginning in
mid-March of 2020, but not as
significantly as our dental business as the decrease in second quarter
medical revenues was only 11.2% versus the
same period in the prior year. Our medical business rebounded strongly in the second half of the year in part
due to
continued strong sales of PPE, such as masks, gowns and face shields,
and COVID-19 related products, such as
diagnostic test kits.
Global medical sales for the year ended December 26, 2020 benefited
from sales of PPE and
COVID-19 related products of approximately $807 million, an
increase of approximately 490% versus the prior
year.
50
The 0.2% decrease in technology and value-added services net sales
for the year ended December 26, 2020 includes
a decrease of 0.3% local currency growth (3.2% decrease in internally generated
revenue, partially offset by 2.9%
growth from acquisitions) partially offset by an increase of 0.1% related to foreign
currency exchange.
The closure
of dental and medical offices beginning in mid-March of 2020 due to the COVID-19 pandemic
resulted in a
decrease of 15.9% in second quarter technology and value-added services
revenues versus the same period in the
prior year.
As dental and medical practice operations, resumed in the second
half of the year, the trend for
transactional software revenues improved as more patients visited practices
worldwide.
Although dental and medical practices continued to re-open globally
in the second half of the year, patient volumes
remain below pre-COVID-19 levels.
As such, there is an ongoing risk that the COVID-19 pandemic may
again
have a material adverse effect on our net sales in future periods.
Gross Profit
Gross profit and gross margins for 2020 and 2019 by segment and in total were as follows
(in thousands):
Gross
Gross
Decrease
2020
Margin %
2019
Margin %
$
%
Health care distribution
$
2,448,991
25.7
%
$
2,717,574
28.9
%
$
(268,583)
(9.9)
%
Technology and value-added services
363,245
70.6
370,887
72.0
(7,642)
(2.1)
Total excluding Corporate TSA revenues
2,812,236
28.0
3,088,461
31.2
(276,225)
(8.9)
Corporate TSA revenues
2,107
2.8
2,425
3.0
(318)
(13.1)
Total
$
2,814,343
27.8
$
3,090,886
31.0
$
(276,543)
(8.9)
As a result of different practices of categorizing costs associated with distribution networks
throughout our
industry, our gross margins may not necessarily be comparable to other distribution companies.
Additionally, we
realize substantially higher gross margin percentages in our technology segment than in
our health care distribution
segment.
These higher gross margins result from being both the developer and seller of
software products and
services, as well as certain financial services. The software industry
typically realizes higher gross margins to
recover investments in research and development.
In connection with the completion of the Animal Health Spin-off (see
for
additional details), we entered into a transition services agreement with
Covetrus, pursuant to which Covetrus
purchased certain products from us.
The agreement, which ended in December 2020, provided that these products
would be sold to Covetrus at a mark-up that ranged from 3% to 6%
of our product cost to cover handling costs.
Within our health care distribution segment, gross profit margins may vary from one period to the next.
Changes in
the mix of products sold as well as changes in our customer mix have
been the most significant drivers affecting
our gross profit margin.
For example, sales of pharmaceutical products are generally
at lower gross profit margins
than other products.
Conversely, sales of our private label products achieve gross profit margins that are higher
than average.
With respect to customer mix, sales to our large-group customers are typically completed at lower
gross margins due to the higher volumes sold as opposed to the gross
margin on sales to office-based practitioners,
who normally purchase lower volumes at greater frequencies.
Health care distribution gross profit decreased $268.6 million, or 9.9%,
for the year ended December 26, 2020
compared to the prior year period, due primarily to the COVID-19
pandemic.
Health care distribution gross profit
margin decreased to 25.7% for the year ended December 26, 2020 from 28.9% for the comparable
prior year
period.
The overall decrease in our health care distribution gross profit is
attributable to a $232.2 million decline in
gross profit due to the decrease in the gross margin rates and a $48.3 million gross profit
decrease in internally
generated revenue, partially offset by $11.9 million of additional gross profit from acquisitions.
Gross profit
margin was negatively affected by significant adjustments recorded for PPE inventory and COVID-19
related
products caused by volatility of pricing and demand experienced during the
year, which conditions may recur and
adversely impact gross profit margins in future periods, although we do not expect
material inventory adjustments
to continue into 2021.
During the year, we continued to earn lower vendor rebates, due to lower purchase volumes,
in our health care distribution segment, which also contributes to the lower gross
profit margin.
51
Technology and value-added services gross profit decreased $7.6 million, or 2.1%, for the year ended December
26, 2020 compared to the prior year period.
Technology
and value-added services gross profit margin decreased to
70.6% for the year ended December 26, 2020 from 72.0%
for the comparable prior year period.
The overall
decrease in our Technology and value-added services gross profit is attributable to a decrease of $11.5 million in
internally generated revenue and a decrease of $8.8 million in gross profit
due to the decrease in the gross margin
rates, partially offset by $12.7 million additional gross profit from acquisitions.
Selling, General and Administrative
Selling, general and administrative expenses by segment and in
total for 2020 and 2019 were as follows (in
thousands):
% of
% of
Respective
Respective
Increase / (Decrease)
2020
Net Sales
2019
Net Sales
$
%
Health care distribution
$
2,014,925
21.1
%
$
2,128,595
22.7
%
$
(113,670)
(5.3)
%
Technology and value-added services
264,115
51.4
244,030
47.4
20,085
8.2
Total
$
2,279,040
22.5
$
2,372,625
23.8
$
(93,585)
(3.9)
Selling, general and administrative expenses (including restructuring costs
in the years ended December 26, 2020
and December 28, 2019) decreased $93.6 million, or 3.9%, to $2,279.0 million
for the year ended December 26,
2020 from the comparable prior year period.
The $113.7 million decrease in selling, general and administrative
expenses within our health care distribution segment for the year ended December
26, 2020 as compared to the
prior year period was attributable to a reduction of $151.5 million of operating
costs, primarily as a result of cost-
saving measures taken in response to the COVID-19 pandemic, partially offset by
$20.8 million of additional costs
from acquired companies and an increase of $17.0 million in restructuring
costs.
The $20.1 million increase in
selling, general and administrative expenses within our technology and value-added
services segment for the year
ended December 26, 2020 as compared to the prior year period was
attributable to $10.5 million of additional costs
from acquired companies and an increase of $9.6 million of operating costs.
As a percentage of net sales, selling,
general and administrative expenses decreased to 22.5% from 23.8% for
the comparable prior year period. The cost
savings achieved from measures taken in response to the COVID-19
pandemic are expected to diminish in future
periods as most of these measures were temporary and substantially ended
during the second half of 2020.
As a component of total selling, general and administrative expenses, selling
expenses decreased $86.4 million, or
5.9%, to $1,375.2 million for the year ended December 26, 2020 from
the comparable prior year period, primarily
as a result of cost-saving measures taken in response to the COVID-19
pandemic.
As a percentage of net sales,
selling expenses decreased to 13.6% from 14.7% for the comparable prior
year period.
As a component of total selling, general and administrative expenses, general
and administrative expenses
decreased $7.2 million, or 0.8%, to $903.8 million for the year ended
December 26, 2020 from the comparable
prior year period.
As a percentage of net sales, general and administrative expenses
decreased to 8.9% from 9.1%
for the comparable prior year period.
Other Expense, Net
Other expense, net for the years ended 2020 and 2019 was as follows
(in thousands):
Variance
2020
2019
$
%
Interest income
$
9,842
$
15,757
$
(5,915)
(37.5)
%
Interest expense
(41,377)
(50,792)
9,415
18.5
Other, net
(3,873)
(2,919)
(954)
(32.7)
Other expense, net
$
(35,408)
$
(37,954)
$
2,546
6.7
Interest income decreased $5.9 million primarily due to lower interest rates
and reduced late fee income.
Interest
expense decreased $9.4 million primarily due to lower interest rates and
lower average debt balances for the year
ended December 26, 2020 as compared to the prior year.
52
Income Taxes
For the year ended December 26, 2020, our effective tax rate was 19.1%
compared to 23.4%
for the prior year
period.
In 2020, our effective tax rate was primarily impacted by the agreement with the U.S Internal
Revenue
Service on our Advanced Pricing Agreement (APA), other audit resolutions, and state and foreign income taxes and
interest expense.
In 2019, our effective tax rate was primarily impacted by state and
foreign income taxes and
interest expense.
Net Gain on Sale of Equity Investments
In the fourth quarter of 2020 we received contingent proceeds of $2.1
million from the 2019 sale of Hu-Friedy
resulting in the recognition of an additional after-tax gain of $1.6 million.
53
2019 Compared to 2018
Net Sales
Net sales for 2019 and 2018 were as follows (in thousands):
% of
% of
Increase
2019
Total
2018
Total
$
%
Health care distribution
(1)
Dental
$
6,415,865
64.2
%
$
6,347,998
67.4
%
$
67,867
1.1
%
Medical
2,973,586
29.8
2,661,166
28.3
312,420
11.7
Total health care distribution
9,389,451
94.0
9,009,164
95.7
380,287
4.2
Technology and value-added services
(2)
515,085
5.2
408,439
4.3
106,646
26.1
Total excluding Corporate TSA revenues
9,904,536
99.2
9,417,603
100.0
486,933
5.2
Corporate TSA revenues
(3)
81,267
0.8
-
-
81,267
-
Total
$
9,985,803
100.0
$
9,417,603
100.0
$
568,200
6.0
(1)
Consists of consumable products, small equipment, laboratory products, large equipment, equipment repair services, branded and generic
pharmaceuticals, vaccines, surgical products, diagnostic tests, infection-control products and vitamins.
(2)
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.
(3)
Corporate TSA revenues represents sales of certain products to Covetrus under the transition services agreement entered into in
connection with the Animal Health Spin-off, which ended in December 2020.
The 6.0% increase in net sales for the year ended December 28, 2019
includes an increase of 7.7% local currency
growth (4.4% increase in internally generated revenue and 3.3% growth
from acquisitions) partially offset by a
decrease of 1.7% related to foreign currency exchange.
Excluding sales of products under the transition services
agreement with Covetrus, our net sales increased 5.2%, including local
currency growth of 6.9% (3.5% increase in
internally generated revenue and 3.4% growth from acquisitions) partially
offset by a decrease of 1.7% related to
foreign currency exchange.
The 1.1% increase in dental net sales for the year ended December 28, 2019
includes an increase of 3.4% in local
currencies (2.0% increase in internally generated revenue and 1.4% growth
from acquisitions) partially offset by a
decrease of 2.3% related to foreign currency exchange.
The 3.4% increase in local currency sales was due to
increases in dental equipment sales and service revenues of 1.0%, all of which
is attributable to an increase in
internally generated revenue and dental consumable merchandise sales growth
of 4.2% (2.3% increase in internally
generated revenue and 1.9% growth from acquisitions).
The 11.7% increase in medical net sales for the year ended December 28, 2019 includes an
increase of 11.9% local
currency growth (7.0% increase in internally generated revenue and
4.9% growth from acquisitions) partially offset
by a decrease of 0.2% related to foreign currency exchange.
The 26.1% increase in technology and value-added services net sales for the
year ended December 28, 2019
includes an increase of 27.0% local currency growth (4.3% increase in
internally generated revenue and 22.7%
growth from acquisitions) partially offset by a decrease of 0.9% related to foreign
currency exchange.
54
Gross Profit
Gross profit and gross margins for 2019 and 2018 by segment and in total were as follows
(in thousands):
Gross
Gross
Increase
2019
Margin %
2018
Margin %
$
%
Health care distribution
$
2,717,574
28.9
%
$
2,628,767
29.2
%
$
88,807
3.4
%
Technology and value-added services
370,887
72.0
281,980
69.0
88,907
31.5
Total excluding Corporate TSA revenues
3,088,461
31.2
2,910,747
30.9
177,714
6.1
Corporate TSA revenues
2,425
3.0
-
-
2,425
-
Total
$
3,090,886
31.0
$
2,910,747
30.9
$
180,139
6.2
As a result of different practices of categorizing costs associated with distribution networks
throughout our
industry, our gross margins may not necessarily be comparable to other distribution companies.
Additionally, we
realize substantially higher gross margin percentages in our technology segment than
in our health care distribution
segment.
These higher gross margins result from being both the developer and seller of
software products and
services, as well as certain financial services. The software industry typically
realizes higher gross margins to
recover investments in research and development.
In connection with the completion of the Animal Health Spin-off (see
for
additional details), we entered into a transition services agreement with
Covetrus, pursuant to which Covetrus
purchased certain products from us.
The agreement, which ended in December 2020, provided that these products
would be sold to Covetrus at a mark-up that ranged from 3% to 6%
of our product cost to cover handling costs.
Within our health care distribution segment, gross profit margins may vary from one period to the next.
Changes in
the mix of products sold as well as changes in our customer mix have
been the most significant drivers affecting
our gross profit margin.
For example, sales of pharmaceutical products are generally
at lower gross profit margins
than other products.
Conversely, sales of our private label products achieve gross profit margins that are higher
than average.
With respect to customer mix, sales to our large-group customers are typically completed at lower
gross margins due to the higher volumes sold as opposed to the gross
margin on sales to office-based practitioners,
who normally purchase lower volumes at greater frequencies.
Health care distribution gross profit increased $88.8 million, or 3.4%, for
the year ended December 28, 2019
compared to the prior year period.
Health care distribution gross profit margin decreased to 28.9% for the year
ended December 28, 2019 from 29.2% for the comparable prior year period.
The overall increase in our health care
distribution gross profit is attributable to $73.1 million of additional gross
profit from acquisitions and $30.9
million gross profit increase from growth in internally generated revenue.
These increases were partially offset by
a $15.2 million decline in gross profit due to the decrease in the gross
margin rates.
Technology and value-added services gross profit increased $88.9 million, or 31.5%, for the year ended December
28, 2019 compared to the prior year period.
Technology and value-added services gross profit margin increased to
72.0% for the year ended December 28, 2019 from 69.0% for the comparable
prior year period.
Acquisitions
accounted for $80.2 million of our gross profit increase within our technology
and value-added services segment
for the year ended December 28, 2019 compared to the prior year period
and also accounted for the increase in the
gross profit margin. The remaining increase of $8.7 million in our technology
and value-added services segment
gross profit was primarily attributable to growth in internally generated
revenue.
55
Selling, General and Administrative
Selling, general and administrative expenses by segment and in
total for 2019 and 2018 were as follows (in
thousands):
% of
% of
Respective
Respective
Increase / (Decrease)
2019
Net Sales
2018
Net Sales
$
%
Health care distribution
$
2,128,595
22.7
%
$
2,137,779
23.7
%
$
(9,184)
(0.4)
%
Technology and value-added services
244,030
47.4
172,349
42.2
71,681
41.6
Total
$
2,372,625
23.8
$
2,310,128
24.5
$
62,497
2.7
Selling, general and administrative expenses (including restructuring
costs in the years ended December 28, 2019
and December 29, 2018, and litigation settlements in the year ended December
29, 2018) increased $62.5 million,
or 2.7%, to $2,372.6 million for the year ended December 28, 2019 from
the comparable prior year period.
The
$9.2 million decrease in selling, general and administrative expenses within
our health care distribution segment for
the year ended December 28, 2019 as compared to the prior year period was
attributable to a reduction of $73.7
million of operating costs (primarily due to $38.5 million of litigation
settlement costs recorded in 2018 and a $39.7
million decrease in restructuring costs) partially offset by $64.5 million of additional
costs from acquired
companies.
The $71.7 million increase in selling, general and administrative
expenses within our technology and
value-added services segment for the year ended December 28, 2019 as
compared to the prior year period was
attributable to $70.5 million of additional costs from acquired companies and $1.2
million of additional operating
costs.
As a percentage of net sales, selling, general and administrative expenses
decreased to 23.8% from 24.5%
for the comparable prior year period.
As a component of total selling, general and administrative expenses, selling
expenses increased $33.5 million, or
2.3%, to $1,461.6 million for the year ended December 28, 2019 from
the comparable prior year period.
As a
percentage of net sales, selling expenses decreased to 14.7%
from 15.1% for the comparable prior year period.
As a component of total selling, general and administrative expenses, general
and administrative expenses
decreased $29.0 million, or 3.3%, to $911.0 million for the year ended December 28, 2019 from
the comparable
prior year period primarily due to $38.5 million of litigation settlement
costs recorded in 2018 and a $39.7 million
decrease in restructuring costs partially offset by increases in general and administrative
expenses.
As a percentage
of net sales, general and administrative expenses decreased to 9.1% from 9.4%
for the comparable prior year
period.
Other Expense, Net
Other expense, net for the years ended 2019 and 2018 was as follows
(in thousands):
Variance
2019
2018
$
%
Interest income
$
15,757
$
15,491
$
266
1.7
%
Interest expense
(50,792)
(76,016)
25,224
33.2
Other, net
(2,919)
(3,258)
339
10.4
Other expense, net
$
(37,954)
$
(63,783)
$
25,829
40.5
Interest expense decreased $25.2 million primarily due to decreased
borrowings under our bank credit lines.
56
Income Taxes
For the year ended December 28, 2019, our effective tax rate was 23.4% compared to 20.0%
for the prior year
period.
In 2019, our effective tax rate was primarily impacted by state and foreign income
taxes and interest
expense.
In 2018, our effective tax rate was primarily impacted by a reduction in the estimate
of our transition tax
associated with the Tax Cuts and Jobs Act, tax charges and credits associated with legal entity reorganizations
outside the U.S., and state and foreign income taxes and interest expense.
Within our consolidated balance sheets, transition tax of $9.9 million was included in “Accrued taxes” for 2019
and
2018, and $94.9 million and $104.2 million were included in “Other liabilities”
for 2019 and 2018 respectively.
Net Gain on Sale of Equity Investments
On October 1, 2019, we sold an equity investment in Hu-Friedy, a manufacturer of dental instruments and infection
prevention solutions.
Our investment was non-controlling, we were not involved in
running the business and had
no representation on the board of directors.
During the fourth quarter of 2019, we also sold certain other investments.
In the aggregate, the sales of these
investments resulted in a pre-tax gain of approximately $250.2 million
and an after-tax gain of approximately
$186.8 million.
Liquidity and Capital Resources
Our principal capital requirements have included funding of acquisitions, purchases
of additional noncontrolling
interests, repayments of debt principal, the funding of working capital needs,
purchases of fixed assets and
repurchases of common stock (which have been temporarily suspended).
Working capital requirements generally
result from increased sales, special inventory forward buy-in opportunities and
payment terms for receivables and
payables.
Historically, sales have tended to be stronger during the third and fourth quarters and special inventory
forward buy-in opportunities have been most prevalent just before the
end of the year, and have caused our working
capital requirements to be higher from the end of the third quarter to
the end of the first quarter of the following
year.
The pandemic and the governmental responses to it had a material adverse
effect on our cash flows in the second
quarter of 2020.
In the latter half of the second quarter and continuing
through year-end, dental and medical
practices began to re-open worldwide. However, patient volumes remain below pre-COVID-19 levels and certain
regions in the U.S. and internationally are experiencing an increase in COVID-19
cases.
As such, there is an
ongoing risk that the COVID-19 pandemic may again have a material
adverse effect on our cash flows in future
periods and may result in a material adverse effect on our financial condition and
liquidity.
However, the extent of
the potential impact cannot be reasonably estimated at this time.
As part of a broad-based effort to support plans for the long-term health of our business
and to strengthen our
financial flexibility, we implemented cost reduction measures that included certain reductions in payroll,
substantially decreased capital expenditures, reduced corporate
spending and the elimination of certain non-
strategic targeted expenditures. As our markets have begun to recover, we ended most of those temporary expense-
reduction initiatives during the second half of 2020.
As the COVID-19 pandemic continues to unfold, we will
continue to evaluate appropriate actions for the business.
We finance our business primarily through cash generated from our operations, revolving credit facilities and debt
placements.
Our ability to generate sufficient cash flows from operations is dependent
on the continued demand of
our customers for our products and services, and access to products and
services from our suppliers.
Our business requires a substantial investment in working capital, which
is susceptible to fluctuations during the
year as a result of inventory purchase patterns and seasonal demands.
Inventory purchase activity is a function of
sales activity, special inventory forward buy-in opportunities and our desired level of inventory.
We anticipate
future increases in our working capital requirements.
57
We finance our business to provide adequate funding for at least 12 months.
Funding requirements are based on
forecasted profitability and working capital needs, which, on occasion, may change.
Consequently, we may change
our funding structure to reflect any new requirements.
We believe that our cash and cash equivalents, our ability to access private debt markets and public equity markets,
and our available funds under existing credit facilities provide us with
sufficient liquidity to meet our currently
foreseeable short-term and long-term capital needs.
We have no off-balance sheet arrangements.
On February 7, 2019, we completed the Animal Health Spin-off.
On the Distribution Date we received a tax free
distribution of $1,120 million from Covetrus, which has been used to
pay down our debt, thereby generating
additional debt capacity that can be used for general corporate purposes, including
share repurchases and mergers
and acquisitions.
Net cash provided by operating activities was $593.5 million for the
year ended December 26, 2020, compared to
$820.5 million for the prior year.
The net change of $227.0 million was primarily attributable to lower net income
and lower distributions from equity affiliates,
both resulting from the sale of our equity investment in Hu-Friedy
in
the fourth quarter of 2019, and increased working capital requirements,
specifically an increase in inventories due
to stocking of PPE and COVID-19 related products, and an increase in accounts
receivable due to higher sales
volume.
These working capital increases were partially offset by greater growth
in accounts payable and accrued
expenses.
Net cash used in investing activities was $115.0 million for the year ended December 26, 2020,
compared to $422.3
million for the prior year.
The net change of $307.3 million was primarily due to decreased payments
for equity
investments and business acquisitions, partially offset by decreased proceeds from
sales of equity investments.
Net cash used in financing activities was $181.8 million for the
year ended December 26, 2020, compared to
$363.4 million for the prior year.
The net change of $181.6 million was primarily
due to increased net proceeds
from bank borrowings and lower repurchases of our common stock,
partially offset by proceeds received during the
prior year related to the Animal Health Spin-off.
The following table summarizes selected measures of liquidity and capital
 
resources (in thousands):
resources:
December 26,30,
December 28,31,
20202023
20192022
Cash and cash equivalents
 
$
421,185171
$
106,097117
Working
 
capital
(1)
1,508,3131,805
1,188,1331,764
Debt:
Bank credit lines
 
$
73,366264
$
23,975103
Current maturities of long-term debt
 
109,836150
109,8496
Long-term debt
 
515,7731,937
622,9081,040
Total debt
 
$
698,9752,351
$
756,7321,149
Leases:
Current operating lease liabilities
$
64,71680
$
65,34973
Non-current operating lease liabilities
238,727310
176,267275
(1)
Includes $0.0$284 million and $127.0$327 million of certain accounts receivable which serve as security for U.S. trade accounts receivable
securitizationsecuritizations at December 26, 202030, 2023 and December 28, 2019,31, 2022, respectively.
Our cash and cash equivalents consist of bank balances and investments
 
in money market funds representing
overnight investments with a high degree of liquidity.
Accounts receivable days sales outstanding and inventory turnover
turns
Our accounts receivable days sales outstanding from operations
 
increased to 46.046.2 days as of December 26, 202030, 2023
from 44.541.9 days as of December 28, 2019.31, 2022 due to delays in billings
leading to limited collections in the quarter ended
December 30, 2023 as a result of the cybersecurity incident.
 
During the years ended December 26, 202030, 2023 and
December 28,
2019,31, 2022, we
wrote off approximately $7.8$16 million and $5.9$10 million, respectively, of fully reserved
accounts receivable against
58
our trade receivable reserve.
 
Our inventory turnoverturns from operations was 5.14.5 as of
December 30, 2023 and 4.7 as of December
26, 2020 and 5.0 as
of December 28, 2019. 31, 2022.
 
Our working capital accounts may be impacted by current
and future economic conditions.
Contractual obligations
The following table summarizes our contractual obligations related
 
to fixed and variable rate long-term debt and
finance lease obligations,
including interest (assuming a weighted
average interest
rate of 3.3%4.8%), as well as
inventory purchase commitments and operating lease obligations
as of December
26, 2020:
30, 2023:
Payments due by period (in thousands)
< 1 year
2 - 3 years
4 - 5 years
> 5 years
Total
Contractual obligations:
Long-term debt, including interest
$
125,797243
$
43,9941,097
$
126,464346
$
435,219783
$
731,4742,469
Inventory purchase commitments
208,2005
110,8008
4
-
17
Operating lease obligations
92
141
86
119
438
Transition tax obligations
11
24
-
-
319,000
Operating lease obligations
71,801
98,719
55,046
110,228
335,794
Transition tax obligations
9,895
43,291
30,923
-
84,10935
Finance lease obligations, including interest
2,5034
2,1383
632
920
6,193
Total
$
418,196
$
298,942
$
213,065
$
546,367
$
1,476,570
Bank Credit Lines
Bank credit lines consisted of the following:
December 26,
December 28,
2020
2019
Revolving credit agreement
$2
-
$
-
Other short-term bank credit lines
73,366
23,9759
Total
$
73,366355
$
23,9751,273
$
Revolving Credit Agreement438
$
On April 18, 2017, we entered into a $750 million revolving credit
agreement (the “Credit Agreement”), which902
matures in April 2022.
The interest rate is based on the USD LIBOR
plus a spread based on our leverage ratio at$
the end of each financial reporting quarter.
We expect the LIBOR rate to be discontinued at some point2,968
during 2021, which will require an amendmentFor information relating to our debt agreements to
reflect a new reference rate. We do notplease see
expect the discontinuation of LIBOR as a reference rate in our debt agreements
to have a material adverse effect onNote 13 – Debt
our financial position or to materially affect our interest expense.
The Credit Agreement also requires, among other
things, that we maintain maximum leverage ratios. Additionally, the Credit Agreement contains customary
representations, warranties and affirmative covenants as well as customary negative
covenants, subject to
negotiated exceptions on liens, indebtedness, significant corporate changes
(including mergers), dispositions and
certain restrictive agreements.
As of December 26, 2020 and December 28, 2019, we had no borrowings
on this
revolving credit facility.
As of December 26, 2020 and December 28, 2019, there
were $9.5 million and $9.6
million of letters of credit, respectively, provided to third parties under the credit facility.
On April 17, 2020, we amended the Credit Agreement to, among other
things, (i) modify the financial covenant
from being based on total leverage ratio to net leverage ratio, (ii) adjust
the pricing grid to reflect the net leverage
ratio calculation, and (iii) increase the maximum maintenance leverage ratio
through March 31, 2021.
.
 
59
364-Day Credit Agreement
On April 17, 2020, we entered into a new $700 million 364-day credit agreement,
with JPMorgan Chase Bank,
N.A. and U.S. Bank National Association as joint lead arrangers and joint
bookrunners.
This facility matures on
April 16, 2021.
As of December 26, 2020, we had no borrowings under this credit
facility.
We have the ability to
borrow up to an additional $200 million, from the original facility amount
of $700 million, under this credit facility
on a revolving basis as needed, subject to the terms and conditions of
the credit agreement.
The interest rate for
borrowings under this facility will fluctuate based on our net leverage
ratio.
At December 26, 2020, the interest
rate on this facility was 2.50%.
The proceeds from this facility can be used for working capital requirements
and
general corporate purposes, including, but not limited to, permitted refinancing
of existing indebtedness.
Under the
terms of this agreement, we are prohibited from repurchasing our common stock
until we report our financial
results for the second quarter of 2021.
Other Short-Term Credit
Lines
As of December 26, 2020 and December 28, 2019, we had various other
short-term bank credit lines available, of
which $73.4 million and $24.0 million, respectively, were outstanding.
At December 26, 2020 and December 28,
2019, borrowings under all of these credit lines had a weighted average
interest rate of 4.14% and 3.45%,
respectively.
Long-term debt
Long-term debt consisted of the following:
December 26,
December 28,
2020
2019
Private placement facilities
$
613,498
$
621,274
U.S. trade accounts receivable securitization
-
100,000
Note payable due in 2025 with an interest rate of 3.1%
at December 26, 2020
1,554
-
Various
collateralized and uncollateralized loans payable with interest,
in varying installments through 2023 at interest rates
ranging from 2.62% to 4.27% at December 26, 2020 and
ranging from 2.56% to 10.5% at December 28, 2019
4,596
6,089
Finance lease obligations (see Note 7)
5,961
5,394
Total
625,609
732,757
Less current maturities
(109,836)
(109,849)
Total long-term debt
$
515,773
$
622,908
Private Placement Facilities
Our private placement facilities, with three insurance companies, have a
total facility amount of $1 billion, and are
available on an uncommitted basis at fixed rate economic terms to be agreed upon
at the time of issuance, from
time to time through June 23, 2023.
The facilities allow us to issue senior promissory notes to the
lenders at a fixed
rate based on an agreed upon spread over applicable treasury notes at
the time of issuance.
The term of each
possible issuance will be selected by us and can range from five to
15 years (with an average life no longer than 12
years).
The proceeds of any issuances under the facilities will be used
for general corporate purposes, including
working capital and capital expenditures, to refinance existing indebtedness
and/or to fund potential acquisitions.
On June 29, 2018, we amended and restated the above private placement
facilities to, among other things, (i) permit
the consummation of the Animal Health Spin-off and (ii) provide for the issuance
of notes in Euros, British Pounds
and Australian Dollars, in addition to U.S. Dollars.
The agreements provide, among other things, that we maintain
certain maximum leverage ratios, and contain restrictions relating
to subsidiary indebtedness, liens, affiliate
transactions, disposal of assets and certain changes in ownership.
These facilities contain make-whole provisions in
the event that we pay off the facilities prior to the applicable due dates.
60
On June 23, 2020, we amended the private placement facilities to, among
other things, (i) temporarily modify the
financial covenant from being based on total leverage ratio to net leverage
ratio until March 31, 2021, (ii) increase
the maximum maintenance leverage ratio through March 31, 2021, but with
a 1.00% interest rate increase on the
outstanding notes if the net leverage ratio exceeds 3.0x, which will remain
in effect until we deliver financials for a
four-quarter period ending on or after June 30, 2021 showing compliance with
the total leverage ratio requirement,
and (iii) make certain other changes conforming to the Credit Agreement, dated
as of April 18, 2017, as amended.
The components of our private placement facility borrowings as
of December 26, 2020 are presented in the
following table (in thousands):
Amount of
Date of
Borrowing
Borrowing
Borrowing
Outstanding
Rate
Due Date
January 20, 2012
(1)
$
14,286
3.09
%
January 20, 2022
January 20, 2012
50,000
3.45
January 20, 2024
December 24, 2012
50,000
3.00
December 24, 2024
June 2, 2014
100,000
3.19
June 2, 2021
June 16, 2017
100,000
3.42
June 16, 2027
September 15, 2017
100,000
3.52
September 15, 2029
January 2, 2018
100,000
3.32
January 2, 2028
September 2, 2020
(2)
100,000
2.35
September 2, 2030
Less: Deferred debt issuance costs
(788)
$
613,498
(1)
Annual repayments of approximately $7.1 million for this borrowing commenced on January 20, 2016.
(2)
On September 2, 2020, we refinanced our $100 million private placement borrowing at 3.79%, originally due on September 2, 2020,
with a similar 10-year borrowing at 2.35% maturing on September 2, 2030.
U.S. Trade Accounts Receivable Securitization
We have a facility agreement with a bank, as agent, based on the securitization of our U.S. trade accounts
receivable that is structured as an asset-backed securitization program with pricing
committed for up to three years.
Our current facility, which has a purchase limit of $350 million, was scheduled to expire on April 29, 2022.
On
June 22, 2020, the expiration date for this facility was extended to
June 12, 2023 and was amended to adjust certain
covenant levels for 2020.
As of December 26, 2020 and December 28, 2019, the borrowings outstanding
under this
securitization facility were $0.0 million and $100 million, respectively.
At December 26, 2020, the interest rate on
borrowings under this facility was based on the asset-backed commercial
paper rate of 0.22% plus 0.95%, for a
combined rate of 1.17%.
At December 28, 2019, the interest rate on borrowings under this facility
was based on
the asset-backed commercial paper rate of 1.90% plus 0.75%, for a combined
rate of 2.65%.
If our accounts receivable collection pattern changes due to customers
either paying late or not making payments,
our ability to borrow under this facility may be reduced.
We are required to pay a commitment fee of 25 to 45 basis points depending upon program utilization.
6157
Leases
We have operating and finance leases for corporate offices, office space, distribution and other facilities, vehicles
and certain equipment.
 
Our leases have remaining terms of less than one year to 16
approximately 18 years, some of
of which may
include options to extend the leases for up to 1015 years.
 
As of December 26, 2020,30, 2023, our right-of-use
assets related to
operating leases were $288.8$325 million and our current and non-current operating
 
operating lease liabilities were $64.7
$80 million
and $238.7$310 million, respectively.
Please see
for further information.
 
Stock Repurchases
On February 8, 2023, our Board authorized the repurchase of up
to an additional $400 million in shares of our
common stock.
From June 21, 2004March 3, 2003 through December 26, 2020,30, 2023, we repurchased $3.6$4.7
 
billion, or 75,563,28990,394,805 shares, under our
common stock repurchase programs, with $201.2$265 million available
as of
December 26, 202030, 2023 for future common stock
stock share repurchases.
On October 30, 2019, our Board of Directors authorized the repurchase of
up to an additional $400 million in
shares of our common stock.
As a result of the COVID-19 pandemic, as previously announced, we have
temporarily suspended our share
repurchase program in an effort to preserve cash and exercise caution during this
uncertain period and due to
certain restrictions related to financial covenants in our credit facilities.
Redeemable Noncontrolling interests
Interests
Some minority stockholders in certain of our consolidated subsidiaries have
the right,
at certain times, to require us
to acquire
their ownership interest in those entities at fair value.entities.
 
AccountAccounting Standards Codification (“ASC”)Topic 480-10 is applicable
applicable for noncontrolling interests where we are or may be required to purchase
 
to purchase all or a portion of the
outstanding interest
in a consolidated subsidiary from the noncontrolling interest holder
 
holder under the terms of a put
option contained in
contractual agreements.
 
The componentsAs of the change in the Redeemable noncontrolling
interests for the years ended December 26, 2020, December 28, 201930, 2023 and December 31, 2022,
 
29, 2018 are presented in theour balance for redeemable
following table:noncontrolling interests was $864 million and $576 million, respectively.
Please see
 
December 26,
December 28,
December 29,
2020
2019
2018
Balance, beginning of period
$
287,258
$
219,724
$
465,585
Decrease in redeemable noncontrolling interests due to
redemptions
(17,241)
(2,270)
(287,767)
Increase in redeemable noncontrolling interests due to
business acquisitions
28,387
74,865
4,655
Net income attributable to redeemable noncontrolling interests
13,363
14,838
15,327
Dividends declared
(12,631)
(10,264)
(8,206)
Effect of foreign currency translation loss attributable to
redeemable noncontrolling interests
(4,279)
(2,335)
(11,330)
Change in fair value of redeemable securities
32,842
(7,300)
41,460
Balance, end of period
$
327,699
$
287,258
$
219,724
Changes in the estimated redemption amounts of the noncontrolling
interests subject to put options are adjusted at
each reporting period with a corresponding adjustment to Additional paid-in
capital.
Future reductions in the
carrying amounts are subject to a floor amount that is equal to
the fair value of the redeemable noncontrolling
interests at the time they were originally recorded.
The recorded value of the redeemable noncontrolling interests
cannot go below the floor level.
These adjustments do not impact the calculation of earnings per
share.
Additionally, some prior owners of such acquired subsidiaries are eligible to receive additional purchase price cash
consideration if certain financial targets are met.
Any adjustments to these accrual amounts are recorded in our
consolidated statement of income.
For the years ended December 26, 2020 and December 28, 2019,
there were no
62
material adjustments recorded in our consolidated statements of income
relating to changes in estimated contingent
purchase price liabilities.
On July 1, 2018, we closed on a joint venture with Internet Brands,
a provider of web presence and online
marketing software, to create a newly formed entity, Henry Schein One, LLC.
The joint venture includes Henry
Schein Practice Solutions products and services, as well as Henry Schein’s international dental practice
management systems and the dental businesses of Internet Brands.
Internet Brands originally held a 26%
noncontrolling interest in Henry Schein One, LLC that is accounted
for within stockholders’ equity, as well as a
freestanding and separately exercisable right to put its noncontrolling
interest to Henry Schein, Inc. for fair value
following the fifth anniversary of the effective date of the formation of the joint venture.
Beginning with the
second anniversary of the effective date of the formation of the joint venture, Henry
Schein One began issuing a
fixed number of additional interests to Internet Brands, which increased
Internet Brands interest to 27% effective
July 1, 2020.
Henry Schein One will continue issuing additional interests
to Internet Brands annually through the
fifth anniversary, ultimately increasing Internet Brands’ ownership to approximately 33.6%.
Internet Brands is also
entitled to receive a fixed number of additional interests, in the aggregate up
to approximately 1.6% of the joint
venture’s ownership, if certain operating targets are met by the joint venture in its fourth, fifth and sixth operating
years.
These additional shares are considered contingent consideration
that are accounted for within stockholders’
equity; however, these shares will not be allocated any net income of Henry Schein One until the
shares vest or are
earned by Internet Brands.
A Monte Carlo simulation was utilized to value the additional contingent
interests that
are subject to operating targets.
Key assumptions that were applied to derive the fair value of
the contingent
interests include an assumed equity value of Henry Schein One, LLC
at its inception date, a risk-free interest rate
based on U.S. treasury yields, an assumed future dividend yield, a risk-adjusted
discount rate applied to projected
future cash flows, an assumed equity volatility based on historical stock price
returns of a group of guideline
companies, and an estimated correlation of annual cash flow returns to
equity returns.
As a result of this transaction
with Internet Brands, we recorded $567.6 million of noncontrolling
interest within stockholders’ equity.
Noncontrolling Interests
Noncontrolling interests represent our less than 50% ownership interest
in an acquired subsidiary. Our net income
is reduced by the portion of the subsidiaries net income that is attributable
to noncontrolling interests.
further information.
Unrecognized tax benefits
 
As more fully disclosed in
of “Notes to Consolidated Financial
Statements,” we cannot
reasonably estimate
the timing of future cash flows related to theour unrecognized
tax benefits,
including accrued
interest, of $84.0$115 million
as of December 26, 2020.30, 2023.
 
Critical Accounting PoliciesEstimates
Our accounting policies are more fully described in
 
of the consolidated financial statements.
 
The preparation of consolidated financial statements requires us
to
make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues
and expenses and
related disclosures of contingent assets and
liabilities.
 
We base our estimates on historical data, when available,
experience, industry and market trends, and on
various other assumptions
that are believed to be reasonable under
the circumstances,
the combined results of
which form the basis for
making judgments about the carrying values of
of assets and liabilities that are not readily
apparent from other sources.
We believe that the estimates, judgments and
assumptions upon which we rely are reasonable based upon information
available to us at the time that these
estimates, judgments and assumptions are made.
 
However, by their nature, estimates are subject to various
assumptions and
uncertainties.
 
ReportedTherefore, reported results are therefore sensitive tomay differ from estimates and any changes in our assumptions,
judgments and estimates,such differences may
including the possibility of obtaining materially different results if different assumptions were
to be applied.
Our financial results for the year ended December 26, 2020 were
affected by certain estimates we made due to the
adverse business environment brought on by the COVID-19 pandemic.
During the year ended December 26, 2020,
we recorded incremental bad debt reserves of approximately $10.0
million for our global dental business.
Our
stock compensation expense during the year ended December 26, 2020
was lower than in the years ended
December 28, 2019 and December 29, 2018 duematerial to our estimate that a lower amountconsolidated financial statements.
 
of performance shares granted
in 2018, 2019 or 2020 would ultimately vest as a result of the lower-than-normal earnings
in 2020.
Additionally, in
the year ended December 26, 2020, we recorded total impairment charges on intangible assets
of approximately
$20.3 million.
Although our selling, general and administrative expenses
for the year ended December 26, 2020
63
represent management's best estimates and assumptions that affect the reported
amounts, our judgment could
change in the future due to the significant uncertainty surrounding the macroeconomic
effect of the COVID-19
pandemic.
Furthermore, during the year ended December 26, 2020, our gross profit
margin was negatively affected by
significant adjustments recorded for PPE inventory and COVID-19 related
products reflecting changes in our
estimates of net realizable value brought on by volatility of pricing and changes
in demand experienced during the
year. Such conditions may recur and adversely impact gross profit margins in future periods, although we do not
expect material inventory adjustments to continue into 2021.
We believe that the following critical accounting policies,estimates, which have been discussed with the Audit Committee of
theof our Board, of Directors, affect the significant estimates and judgments used in the preparation
 
preparation of our consolidated financial
statements:
Revenue Recognition
We generate revenue from the sale of dental and medical consumable products, equipment (health care distribution
revenues), software products and services and other sources (technology
and value-added services revenues).
Provisions for discounts, rebates to customers, customer returns and other
contra revenue adjustments are included
in the transaction price at contract inception by estimating the most likely
amount based upon historical data and
estimates and are provided for in the period in which the related sales are
recognized.
Revenue derived from the sale of consumable products is recognized at a point
in time when control transfers to the
customer.
Such sales typically entail high-volume, low-dollar orders shipped
using third-party common carriers.
We believe that the shipment date is the most appropriate point in time indicating control has transferred to the
customer because we have no post-shipment obligations and this is when
legal title and risks and rewards of
ownership transfer to the customer and the point at which we have an
enforceable right to payment.
Revenue derived from the sale of equipment is recognized when control
transfers to the customer. This occurs
when the equipment is delivered.
Such sales typically entail scheduled deliveries of large equipment primarily
by
equipment service technicians. Some equipment sales require minimal
installation, which is typically completed at
the time of delivery. Our product generally carries standard warranty terms provided by the manufacturer, however,
in instances where we provide warranty labor services, the warranty
costs are accrued in accordance with ASC 460
“Guarantees”.
Revenue derived from the sale of software products is recognized when
products are shipped to customers or made
available electronically. Such software is generally installed by customers and does not require extensive training
due to the nature of its design. Revenue derived from post-contract customer
support for software, including annual
support and/or training, is generally recognized over time using time elapsed
as the input method that best depicts
the transfer of control to the customer.
Revenue derived from other sources, including freight charges, equipment repairs
and financial services, is
recognized when the related product revenue is recognized or when
the services are provided.
We apply the
practical expedient to treat shipping and handling activities performed after
the customer obtains control as
fulfillment activities, rather than a separate performance obligation in the contract.
Sales, value-add and other taxes we collect concurrent with revenue-producing
activities are excluded from
revenue.
Certain of our revenue is derived from bundled arrangements that include
multiple distinct performance obligations
which are accounted for separately.
When we sell software products together with related services (i.e.,
training
and technical support), we allocate revenue to software using the residual
method, using an estimate of the
standalone selling price to estimate the fair value of the undelivered
elements.
There are no cases where revenue is
deferred due to a lack of a standalone selling price. Bundled arrangements that
include elements that are not
considered software consist primarily of equipment and the related installation
service.
We allocate revenue for
such arrangements based on the relative selling prices of the goods or services. If
an observable selling price is not
64
available (i.e., we do not sell the goods or services separately), we use one
of
the following techniques to estimate
the standalone selling price:
adjusted market approach; cost-plus approach; or the residual
method.
There is no
specific hierarchy for the use of these methods, but the estimated selling
price reflects our best estimate of what the
selling prices of each deliverable would be if it were sold regularly on
a standalone basis taking into consideration
the cost structure of our business, technical skill required, customer
location and other market conditions.
Accounts Receivable
Accounts receivable are generally recognized when health care distribution
and technology and value-added
services revenues are recognized.
In accordance with the “expected credit loss” model, the carrying amount
of
accounts receivable is reduced by a valuation allowance that reflects
our best estimate of the amounts that will not
be collected.
In addition to reviewing delinquent accounts receivable, we consider
many factors in estimating our
reserve, including types of customers and their credit worthiness, experience
and historical data adjusted for current
conditions and reasonable supportable forecasts.
Sales Returns
Sales returns are recognized as a reduction of revenue by the amount
of expected returns and are recorded as refund
liability within current liabilities. We estimate the amount of revenue expected to be reversed to calculate the sales
return liability based on historical data for specific products, adjusted
as necessary for new products.
The
allowance for returns is presented gross as a refund liability and we
record an inventory asset (and a corresponding
adjustment to cost of sales) for any products that we expect to be returned.
Inventories and Reserves
Inventories consist primarily of finished goods and are valued at
 
the lower of cost or market.net realizable value.
 
Cost is
determined by
the first-in, first-out method for merchandise orand actual cost
for large equipment and
high tech
equipment.
 
In
accordance with our policy for estimating carrying value of inventory, valuation, we consider many
factors including the condition and salability
of the inventory, historical sales, forecasted sales and market and economic trends.
From time to time, we may adjust our assumptions for anticipated changes
in any of these or other factors expected
to affect the value of inventory.
Although we believe our judgments, estimates and/or
assumptions related to
inventory and reserves are reasonable, making material changes to such
judgments, estimates and/or assumptions
could materially affect our financial results.
Acquisitions
We account for business acquisitions and combinations under the acquisition method of accounting, where the net
assets of businesses purchased are recorded at their fair value at
the acquisition date and our consolidated financial
statements include their results of operations from that date.
Any excess of acquisition consideration over the fair
value of identifiable net assets acquired is recorded as goodwill.
The major classes of assets and liabilities that we
generally allocate purchase price to, excluding goodwill, include identifiable
intangible assets (i.e., trademarks and
trade names, customer relationships and lists, non-compete agreements and
product development), property, plant
and equipment, deferred taxes and other current and long-term assets and
liabilities.
The estimated fair value of
identifiable intangible assets is based on critical estimates, judgments
and assumptions derived from: analysis of
market conditions; discount rates; discounted cash flows; customer
retention rates; and estimated useful lives.
Some prior owners of such acquired subsidiaries are eligible to receive additional
purchase price cash consideration
if certain financial targets are met.
While we use our best estimates and assumptions to accurately value
those
assets acquired and liabilities assumed at the acquisition date as well
as contingent consideration, where applicable,
our estimates are inherently uncertain and subject to refinement.
As a result, during the measurement period we
may record adjustments to the assets acquired and liabilities assumed with
the corresponding offset to goodwill
within our consolidated balance sheets.
At the end of the measurement period or final determination
of the values
of such assets acquired or liabilities assumed, whichever comes first,
any subsequent adjustments are recognized in
our consolidated statements of operations.
58
salability of the inventory by reviewing on-hand quantities, historical sales,
 
65forecasted sales and market and
Goodwilleconomic trends.
Certain of our products, specifically PPE and COVID-19 test kits, have experienced
changes in
net realizable value, due to volatility of pricing and changes in demand
for these products.
 
Business Combinations
The estimated fair value of acquired identifiable intangible assets (i.e., customer
relationships and lists, trademarks
and trade names, product development and non-compete agreements)
is based on critical judgments and
assumptions derived from analysis of market conditions, including discount
rates, projected revenue growth rates
(which are based on historical trends and assessment of financial projections),
estimated customer attrition and
projected cash flows.
These assumptions are forward-looking and could be affected by future economic
and market
conditions.
Please see
for further discussion of our acquisitions.
Goodwill is not amortized, but
Goodwill is subject to impairment analysis at least once annually as
 
once annually,of the first day of our fourth quarter, or if an
event occurs or
circumstances change that would more likely than
not reduce thea reporting unit’s fair value
of a reporting unit below its carrying
value.
Such impairment analyses for goodwill require a comparison of the
fair value to the carrying value of
reporting units.value.
 
We regard our reporting units to be our operating segments: our global dental globaland medical
and
businesses, and technology and value-added services.
 
Goodwill wasis allocated to such reporting units, for the
purposes
of preparing
our impairment analyses, based on a specific identification
basis.
 
Application of the goodwill impairment test requires judgment, including
 
the identification of reporting units,
assignment of assets and liabilities that are considered shared services
 
to the reporting units, and ultimately the
determination of the fair value of each reporting unit.
The fair value of
each reporting unit is calculated by applying
applying the discounted cash flow methodology and confirming with
a market approach.
 
This analysis requiresThere are inherent
uncertainties, however, related to fair value models, the inputs and our judgments in applying them
to this analysis.
includingThe most significant inputs include estimation of detailed future cash flows based
on budget
expectations, and
determination of comparable
companies to develop a weighted average
cost of capital for each reporting unit.
 
unit.
On an annual basis, we prepare financial projections.
These projections are based on input from our leadership and
are presented annually to our Board.
Influences on this year's forecasted financial information and
the fair value
model include: the impact of planned strategic initiatives, the continued
integration of recent acquisitions and
overall market conditions.
The estimates used to calculate the
fair value of a reporting unit change
from year to
year based on operating results,
market conditions, and other factors.
factors. Changes in these estimates and assumptions could materially affect theOur third-party valuation specialists provide inputs into our determination
 
of the discount rate.
The rate is
dependent on a number of underlying assumptions, including the risk-free rate,
tax rate, equity risk premium, debt
to equity ratio and pre-tax cost of debt.
Long-term growth rates are applied to our estimation of future cash flows.
The long-term growth rates are tied to
growth rates we expect to achieve beyond the years for which we have
forecasted operating results.
We also
consider external benchmarks, and other data points which we believe are
applicable to our industry and the
composition of our global operations.
For the years ended December 30, 2023 and December 25, 2021, we believe
the fair value andof each of our reporting
goodwill impairment for each reporting unit.
Supplier Rebates
Supplier rebates are included as a reduction of cost of salesunits sufficiently exceeds the carrying values and are recognized
over the period they are earned.
The
factorsthus we consider in estimating supplier rebate accruals include forecasted
inventory purchases and sales in
conjunction with supplier rebate contract terms which generally providedid not record any amount
 
for increasing rebates basedgoodwill impairment.
Based on eitherour quantitative assessment for the year ended December 31, 2022,
we recorded a $20 million impairment
increased purchaseof goodwill relating to the disposal of an unprofitable business for which
estimated fair value was lower than
carrying value.
As part of our analysis for the rest of the goodwill balance, we performed
a sensitivity analysis on
the discount rate and long-term growth rate assumptions.
The sensitivities did not result in any additional
impairment charges.
59
Definite-Lived Intangible Assets
Annually or sales volume.if we identify an impairment indicator,
definite-lived intangible assets such as non-compete
agreements, trademarks, trade names, customer relationships and lists, and
product development are reviewed for
impairment indicators.
If any impairment indicators exist, quantitative testing
is performed on the asset.
The quantitative impairment model is a two-step test under which we
first calculate the recoverability of the
carrying value by comparing the undiscounted projected cash flows associated
with the asset or asset group,
including its estimated residual value, to the carrying amount.
If the cash flows associated with the asset or asset
group are less than the carrying value, we perform a fair value assessment
of the asset, or asset group.
If the
carrying amount is found to be greater than the fair value, we record an
impairment loss for the excess of book
value over the fair value.
In addition, in all cases of an impairment review, we re-evaluate the remaining useful
lives of the assets and modify them, as appropriate.
 
Although we believe our judgments, estimates and/or
assumptions used in estimating cash flows and determining fair value
 
related to
supplier rebates are reasonable, making material changes to such judgments,
estimates and/or assumptions could
materially affect our financial results.
Long-Lived Assets
Long-lived assets, other than goodwill and other definite-lived intangibles,
are evaluated for impairment whenever
events or changes in circumstances indicate that the carrying amount
of the assets may not be recoverable through
the estimated undiscounted future cash flows to be derived from such
assets.
Definite-lived intangible assets primarily consist of non-compete agreements,
trademarks, trade names, customer
relationships and lists, and product development.
For long-lived assets used in operations, impairment losses
are
only recorded if the asset’s carrying amount is not recoverable through its undiscounted, probability-weighted
future cash flows.
We measure the impairment loss based on the difference between the carrying amount and the
estimated fair value.
When an impairment exists, the related assets are written down to fair value.
Although we
believe our judgments, estimates and/or assumptions used in estimating
cash flows and determining fair value are
reasonable, making material changes to such judgments, estimates and/or
assumptions could materially affect such impairment
impairment analyses and our financial results.
results.
During the year ended December 26, 2020,30, 2023 we recorded total $19 million of
impairment charges related to businesses in
our health care distribution segment, the components of which were
 
on $7 million primarily related to customer lists
and relationships attributable to lower than anticipated operating
margins in certain businesses, and a $12 million
charge related to the planned exit of a business.
These impairment charges were calculated as the differences
between the carrying values and the estimated fair values of the impaired
intangible assets, ofusing a discounted
approximately $20.3estimate of future cash flows.
Please see
for additional
details.
During the year ended December 31, 2022 we recorded $49 million nearly allof
impairment charges related to businesses in
our health care distribution segment, the components of which waswere
a $15 million charge related to the disposal of
an unprofitable business and a $34 million charge related to customer lists and relationships
attributable to
customer attrition rates being higher than expected in certain other
health care distribution businesses.
These
impairment charges were calculated as the differences between the carrying values and the
estimated fair values of
the impaired intangible assets, using a discounted estimate of future
cash flows.
Please see
for additional details.
During the year ended December 25, 2021, we recorded in oura $1 million
 
impairment charge related ratably to a
business within our health care distribution segment and a business within
our technology and value-added services
segment.
Redeemable Noncontrolling Interests
Some minority stockholders in certain of our consolidated subsidiaries have
 
the right, at certain times, to require us
to acquire their ownership interest in those entities at fair value.
 
Stock-Based Compensation
The redemption amounts have been estimated
Stock-based compensation represents the cost related to stock-based awards granted
to employees and non-
employee directors.
We measure stock-based compensation at the grant date, based on recent transactions, expected future earnings and cash flows
and, if such earnings and cash flows are not
achieved, the estimated fair value of
the award, and recognize the cost (net of estimated forfeitures) as compensationredeemable noncontrolling interests might be impacted.
 
expense on a straight-line basisSee
over the requisite service period.Note 1 – Basis of
Our stock-based compensation expense is reflected in selling, general
 
and
for additional
information.
Income Tax
When determining if the realization of a deferred tax asset is likely to assess
the need to record a valuation
allowance, estimates and judgement are required.
We
consider all available evidence, both positive and negative,
including estimated future taxable earnings, ongoing planning strategies,
future reversals of existing temporary
differences and historical operating results.
Additionally, changes to tax laws and statutory tax rates can have an
impact on our consolidated statements of income.
determination.
 
Stock-based awards are providedOur intention is to certain employees and non-employee directors
underevaluate the termsrealizability of our 2020
Stock Incentive Plan (formerly known as the 2013 Stock Incentive Plan),
and our 2015 Non-Employee Director
66
Stock Incentive Plan (together, the “Plans”).
The Plans are administered by the Compensation Committee of
the
Board of Directors.
Equity-based awards are granted solely in the form of restricted
stock units, with the exception
of providing stock options to employees pursuant to certain pre-existing
contractual obligations.
Grants of restricted stock units are stock-based awards granted to recipients with
specified vesting provisions.
In
the case of restricted stock units, common stock is generally delivered
on or following satisfaction of vesting
conditions.
We issue restricted stock units that vest solely based on the recipient’s continued service over time
(primarily four year cliff vesting, except for grants made under the 2015 Non-Employee
Director Stock Incentive
Plan, which are primarily 12 month cliff vesting) and restricted stock units that vest
based on our achieving
specified performance measurements and the recipient’s continued service over time (primarily three year cliff
vesting).
With respect to time-based restricted stock units, we estimate the fair value on the date of grant based on
our
closing stock price.
With respect to performance-based restricted stock units, the number of shares that ultimately
vest and are received by the recipient is based upon our performance as measured
against specified targets over a
specified period, as determined by the Compensation Committee of
the Board of Directors.
Although there is no
guarantee that performance targets will be achieved, we estimate the fair value of performance-based
restricted
stock units based on our closing stock price at time of grant.
The Plans provide for adjustments to the performance-based restricted
stock units targets for significant events,
including, without limitation, acquisitions, divestitures, new business ventures,
certain capital transactions
(including share repurchases), restructuring costs, if any, certain litigation settlements or payments, if any, changes
indeferred tax rates in certain countries, changes in accounting principles or in applicable
laws or regulations and foreign
exchange fluctuations.
Over the performance period, the number of shares of common
stock that will ultimately
vest and be issued and the related compensation expense is adjusted upward
or downward based upon our
estimation of achieving such performance targets.
The ultimate number of shares delivered to recipients
and the
related compensation cost recognized as an expense will be based on our
actual performance metrics as defined
under the Plans.
Although we believe our judgments, estimates and/or assumptions
related to stock-based compensation are
reasonable, making material changes to such judgments, estimates and/or
assumptions could materially affect our
financial results.
Unrecognized Tax
Benefits
assets quarterly.
ASC Topic 740 prescribes the accounting for uncertainty in income taxes recognized in the financial statements in
accordance with other provisions contained within thisits guidance.
 
This topic prescribes a recognition threshold and a
a measurement attribute for the financial statement recognition and measurement
 
of tax positions taken or expected to
to
60
be taken in a tax return.
 
For those benefits to be recognized, a tax position must be more likely
 
likely than not to be
sustained upon examination by the taxing authorities.
 
The amount recognized is measured as the largest amount of
benefit that ishas a greater than 50% likelylikelihood of being realized upon ultimate audit
 
audit settlement.
 
In the normal
course of
business, our tax returns are subject to examination by various taxing
 
taxing authorities.
 
Such examinations may
result in
future tax and interest assessments by these taxing authorities for uncertain
 
tax positions taken in respect of certain
certain tax matters.
Please see
for further discussion.
The Financial Accounting Standards Board Staff Q&A, Topic 740 No. 5, Accounting for Global Intangible Low-
Taxed Income (“GILTI”),
states that an entity can make an accounting policy election to
either recognize deferred
taxes for temporary differences expected to reverse as GILTI in future years or provide for the tax expense related
to GILTI in the year the tax is incurred.
We have elected to recognize the tax on GILTI as a period expense in the
period the tax is incurred.
Accounting Standards Update
For a discussion of accounting standards updates that have been adopted
 
or will be adopted in the future, please see
 
included under Item 8.
67
ITEM 7A.
 
Quantitative and Qualitative Disclosures About Market Risk
 
We are exposed to market risks, interest rate risks as well as changes in foreign currency exchange rates as
measured against the U.S.
dollar and each other, and changes to the credit markets.
 
We attempt to minimize these
risks primarily by primarily using
foreign currency forward contracts and by
maintaining counter-party credit limits.
 
These
hedging activities provide
only limited protection against currency exchange
and credit risks.
 
Factors that could
influence the effectiveness of
our hedging programs include currency markets and
availability of hedging
instruments and liquidity of the credit
markets.
 
All foreign currency forward contracts that we enter into are
components
of hedging programs and are
entered into for the sole purpose
of hedging an existing or anticipated
currency exposure.
 
We do not enter into such
contracts for speculative purposes and we manage our credit risks by
diversifying
our investments, maintaining a
strong balance sheet and having
multiple sources of capital.
Foreign Currency Agreements
The value of certain foreign currencies as compared to the U.S. dollar may
 
and the value of certain underlying functional
currencies of the Company, including its foreign subsidiaries, may affect our financial results.
 
Fluctuations in
exchange rates may positively or negatively affect our revenues, gross margins, operating expenses
 
and retained
earnings, all of which are expressed in U.S. dollars.
 
Where we deem it prudent, we engage in hedging programs
using primarily foreign currency forward contracts aimed at limiting
 
the impact of foreign currency exchange rate
fluctuations on earnings.
 
We purchase short-term (i.e., generally 18 months or less) foreign currency forward
contracts to protect against currency exchange risks associated with intercompany
 
loans due from our international
subsidiaries and the payment of merchandise purchases to foreign
 
suppliers.
 
We do not hedge the translation of
foreign currency profits into U.S. dollars, as we regard this asconsider foreign
currency translation to be an accounting exposure,
exposure, not an economic
exposure.
 
A hypothetical 5% change in the average value of the U.S. dollar in 2023 compared
 
in 2020 compared to
foreign currencies
would have changed our 20202023 reported Net income
attributable to Henry
Schein, Inc. by
approximately $1.3
$5 million.
As of December 26, 2020, we had30, 2023, our forward foreign currency exchange agreements,
 
agreements, which expire through November 3,
16, 2023, which include2028, had a mark-to-market lossfair value of $9.9$(8) million as determined
by quoted market prices.
Included in
the forward foreign
currency exchange agreements, Henry Schein, Inc. had net investment
 
haddesignated EUR/USD forward contracts notionally
totaling an amountwith notional values of approximately €200€300 million with aand reported fair valuevalues
 
of these contracts as a net liability of
$9.6$(7) million.
 
A 5% increase in the
value of the Euro to the USD from December 26,30, 2023 would decrease the fair
 
2020, with all other variables
held constant, would have had an unfavorable effect on the fair value of these forward contracts
by decreasing the
value of these instruments by $11.9$18 million.
Total
 
Return Swaps
On March 20, 2020, we entered into a total return swap for the purpose
 
of economically hedging our unfunded non-
qualified supplemental retirement plan (“SERP”) and our deferred compensation plan obligation.
 
plan (“DCP”).
This swap will
offset changes in our SERP and DCP liabilities.
61
At the inception, the notional value of the investments in these
plans was $43.4 $43
million.
 
At December 26, 2020,30, 2023, the
notional value of the investments
in these plans was $67.6
$96 million.
 
At December 26, 202030, 2023, the financing blended rate
for this swap was
based on LIBOR the Secured Overnight Financing Rate (“SOFR”)
of 0.15% 5.33%
plus 0.38%0.52%, for a combined
combined rate of 0.53%5.85%.
 
From March 20, 2020,For the effective date of the swap, toyears ended December 26, 2020,30, 2023, December 31, 2022, and
December 25, 2021 we have
recorded a gain,gain/(loss), within the selling, general and administrative line itemexpense,
 
in our consolidated statement of income, ofapproximately $10 million, $(17)
approximately $21.2 million and $12 million, respectively, net of transaction costs, related to this undesignated
swap for the year ended
December 26, 2020. swap.
 
This gain was offset by the change in fair value adjustment in deferred compensation,swap is
resulting expected to be renewed on an annual basis and is expected to result
in a neutral impact to our results of operations.
 
This swap is expected to be renewed on an annual basis.
Short-Term Investments
Credit Risk Monitoring
We limit our credit risk with respect to our cash equivalents, short-term investments and derivative instruments, by
monitoring the credit worthiness of the financial institutions who are
 
the counterparties to such financial
instruments.
 
As a risk management policy, we limit the amount of credit exposure by diversifying and utilizing
numerous investment grade counterparties.
68
Variable
Interest Rate Debt
Risk
As of December 26, 2020,30, 2023, we had variable interest rate exposure for certain
 
of our revolving credit facilities and
our U.S. trade accounts receivable securitization.
Our revolving credit facility which we entered into on April 18, 2017July 11,
 
2023 and expires on April 18, 2022, July 11, 2028,
has an interesta variable
interest rate that is based on the U.S. Dollar LIBORSOFR plus a spread based on our leverage
 
leverage ratio at the end of each financial
reporting quarter.
 
As of December 26, 2020,30, 2023, there was $0.0$200 million outstanding under
 
this revolving credit
facility.
 
During the year ended December 26, 2020,30, 2023, the average outstanding
 
balance under this revolving credit
facility was approximately $21.4 $61
million.
 
Based upon our average outstanding balance for this revolving
credit
facility,balances, for each hypothetical increase of 25 basis points, our interest expense thereunder would have increased by
less than $0.1 million.
 
Our U.S trade accounts receivable securitization, which we entered into
on April 17, 2013 and was scheduled to
expire on April 29, 2022, has an interest rate that is based upon the asset-backed
commercial paper rate.
On June
22, 2020, the expiration date for this facility was extended to June 12, 2023.
As of December 26, 2020, the
commercial paper rate was 0.22% plus 0.95%, for a combined rate of
1.17%. At December 26, 2020 the
outstanding balance was $0.0 million under this securitization facility.
During the year ended December 26, 2020,
the average outstanding balance under this securitization facility was approximately
$92.3 million.
Based upon our
average outstanding balance for this securitization facility, for each hypothetical increase of 25 basis points, our
interest expense thereunder would have increased by $0.2 million.
Our U.S. trade accounts receivable securitization, which we entered
 
into on April 17, 2013 and expires on
December 15, 2025, has a variable interest rate that is based upon the asset-backed
 
commercial paper rate.
As of
December 30, 2023, the commercial paper rate was 5.67% plus 0.75%,
for a combined rate of 6.42%,
and the
outstanding balance under this securitization facility was $210 million.
During the year ended December 30, 2023,
the average outstanding balance was approximately $238 million.
Based upon our average outstanding balances,
for each hypothetical increase of 25 basis points, our interest expense thereunder
would have increased by $1
million.
On July 11, 2023, we entered into interest rate swap agreements to hedge the cash flow of our variable
rate $750
million floating debt term loan facility, with three years maturity, effectively changing the floating rate portion of
our obligation to a fixed rate.
Under the terms of the interest rate swap agreements, we receive variable
interest
payments based on the one-month Term SOFR rate and pay interest at a fixed rate.
As of December 30, 2023, the
notional value of the interest rate swap agreements was $741
million.
This term loan matures on July 11, 2026.
At December 30, 2023, the interest on this Term Credit Agreement was 5.36% plus 1.35% for a combined rate of
6.71%.
However, we have a hedge in place (see
 
for additional
information) that ultimately creates an effective fixed rate of 5.79%.
62
69
ITEM 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS
HENRY SCHEIN, INC.
Page
Number
70
(BDO USA, P.C.;
New York,
NY; PCAOB
ID#
243
)
63
 
7265
7366
7467
 
7568
7669
7770
 
7770
 
87
80
 
90
81
 
 
9182
 
9285
 
93
92
 
 
9793
 
 
9995
 
 
10097
 
 
10198
 
104
100
 
 
105101
 
 
106103
 
 
106107
 
110
 
111
 
114
112
116
 
113
115
 
119
 
 
122
122
124
 
123124
 
123
138
All other schedules are omitted because the required information is either
inapplicable or is included in the consolidated
financial statements or the notes thereto.
125
 
63
Report of Independent Registered Public Accounting Firm
70
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
StockholdersShareholders and Board of Directors
 
Henry Schein, Inc.
Melville, NY
Opinion on the Consolidated Financial Statements
 
We
 
have
 
audited
 
the
 
accompanying
 
consolidated
 
balance
 
sheets
 
of
 
Henry
 
Schein,
 
Inc.
 
(the
 
“Company”)
 
as
 
of
December 26, 202030, 2023 and December 28, 2019,31, 2022, the related consolidated statements of income, comprehensive income,
changes in stockholders’ equity,
 
and cash flows for each of
 
of the three years in the period
ended December 30, 2023,
and
 
the period ended December 26, 2020,
 
the related
notes
 
and
schedulenotes
 
(collectively
 
referred
 
to
 
as
 
the
 
“consolidated
 
financial
 
statements”).
 
In
 
our
 
opinion,
 
the
consolidated financial
 
statements present
 
fairly,
 
in
 
all material
 
respects, the
 
financial position
 
of
 
the
 
Company at
December 26, 202030, 2023 and December 28, 2019,31, 2022, and the results of its operations and its cash flows for each of the three
years in
 
the period
 
ended December
 
26, 2020,30, 2023,
 
in conformity
 
with accounting
 
principles generally
 
accepted in
 
the
United States of America.
We
 
also
 
have
 
audited,
 
in
 
accordance
 
with
 
the
 
standards
 
of
 
the
 
Public
 
Company
 
Accounting
 
Oversight
 
Board
(United
 
States)
 
(“PCAOB”),
 
the
 
Company's
 
internal
 
control
 
over
 
financial
 
reporting
 
as
 
of
 
December
 
26,30,
 
2020,2023,
based
 
on
 
criteria
 
established
 
in
Internal
 
Control
 
–
 
Integrated
 
Framework
 
(2013)
 
issued
 
by
 
the
 
Committee
 
of
Sponsoring
 
Organizations
 
of
 
the
 
Treadway
 
Commission
 
(“COSO”)
 
and
 
our
 
report
 
dated
 
February
 
1
7,28,
 
20212024
expressed an unqualifiedadverse opinion thereon.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements,
effective on December 30, 2018, the Company
changed its method of accounting for leases due to the adoption of Accounting
Standards Codification Topic
842,
Leases
.
 
Basis for Opinion
These consolidated financial statements are
the responsibility of the Company’s
 
Company’s management. Our
 
Our responsibility is
to
 
express
an
 
opinion
on
 
the
 
Company’s
 
consolidated
financial
 
statements
based
 
on
 
our
 
audits.
 
We
 
are
 
a
public
accounting
 
firm
 
registered
 
with
 
the
 
PCAOB
 
and
 
are
 
required
 
to
 
be
 
independent
 
with
 
respect
 
to
 
the
 
Company
 
in
accordance
 
with
 
the
 
U.S.
 
federal
 
securities
 
laws
 
and
 
the
 
applicable
 
rules
 
and
 
regulations
 
of
 
the
 
Securities
 
and
Exchange Commission and the PCAOB.
We
 
conducted our
audits in
accordance with the standards of the PCAOB. Those standards require that we plan and
perform
 
the standards
 
of audit
to
obtain
reasonable
assurance
about
whether
the
 
PCAOB.consolidated
 
Those standardsfinancial
 
require thatstatements
 
we planare
free
and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free
of
material misstatement, whether due to error or fraud.
 
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial
ofstatements, whether
 
materialdue to
 
misstatementerror or
 
offraud, and
 
performing procedures
that respond
to those
risks. Such
procedures
included examining,
on a
test basis,
evidence regarding
the amounts
and disclosures
in the
 
consolidated
financial
statements,
whether
due
to
error
or
fraud,
and
performing
procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the
amounts
and
disclosures
in
the
consolidated
financial
statements.
 
Our
audits
 
also
included
 
evaluating the
 
the
accounting
principles
 
used
 
and
significant
 
estimates
made
 
by
management,
as
well
as
evaluating
the
overall
management, as well as evaluating the overall presentation of the consolidated financial
statements.
We
believe that
our audits provide
a reasonable basis for our
opinion.
Critical Audit Matter
The critical
audit matter
communicated below is
a matter
arising from
the current period
audit of
the consolidated
financial statements
that was
communicated or
 
required to
be communicated to the
 
the Audit Committee
 
of the
Board
of
Directors
Committee and
that:
 
(1)
relates
 
to
 
accounts
 
or
 
disclosures
that
 
are
 
material
 
to
 
the
 
consolidated
 
financial statements;
and
(2)
involved
our
statements; and (2) involved our especially challenging,
subjective or
complex judgments.
The communication
of the
critical audit
 
mattersmatter does
 
not
alter
 
alter in
 
any
way
 
our
opinion
 
on
the
 
consolidated
financial
 
statements,
taken
 
as
a
whole,
 
and
 
we
 
are
 
not,
 
by
communicating
the
 
critical
audit
 
matter
below,
 
providing
a
 
separate
opinion
 
on the
 
critical audit
matter or
on the
critical audit matter or on the accounts or disclosures to which it relates.
Business Acquisition
As
described
in
Note
5
of
the
consolidated
financial
statements,
the
Company
acquired
Shield
Healthcare,
Inc.,
(“Shield”)
in
2023.
As
a
result
of
this
acquisition,
management
was
required
to
determine
the
fair
values
of
the
64
identifiable
 
71
assets
 
Uncertain Tax Position
acquired
 
As describedand
 
in Noteliabilities
 
14 assumed.
In
connection
with
the
acquisition
of
 
the consolidatedShield,
 
financial statements the
 
Company operates in
multiple jurisdictions
and
is
subject
recorded $156 million of identifiable intangible assets related to
 
transfer
pricing
compliance
for
intercompany
transactions
that
are
subject
to
audit
by
taxing
authorities. The resolution
of these audits may span multiple
years.
customer relationships and lists.
We
 
identified management’s
 
judgements used to
determine the
 
revenue growth rates
and discount
rate used
in the
determination
 
of
 
uncertainthe
 
taxfair
 
positionsvalue
 
relatedof
 
tothe
 
transferacquired
 
pricingcustomer
 
fromrelationships
 
intercompanyand
lists
transactions
in
the
acquisition
of
Shield
 
as
 
a
critical
audit
matter.
 
The
principal
considerations
 
for
our
determination
 
includedwere the subjective
 
complexjudgement required by
judgmentsmanagement in formulating the
 
relatedrevenue growth rates and
 
to:assessing the appropriateness of the
 
(i)discount rate used in
auditing
assumptions
applied
todeveloping
 
the
 
interpretationfair
values
 
of
 
tax
laws
and
legal
rulings
in
multiple
tax
paying
jurisdictions, (ii)
determining
whether
a
transfer
pricing
tax
position’s
technical merits
are
more-likely-than-not
to
be
sustained
when
measuring
the
 
amountapplicable
 
ofacquired identifiable
 
taxintangible
 
benefits
that
qualifies
for
recognition,
(iii)
assessing
whether
intercompany
transactions
are
based
on
the
arm’s
length
standard
that
may
produce
a
range of
arm’s
length outcomes,
and (iv)
assessing the
adjustments to
the liability
for unrecognized
tax benefits
associated
with
tax
settlements
or
agreements.assets.
 
Auditing
 
these
 
elementsconsiderations
involved
 
especially
 
subjective
 
auditor
judgment and
 
an increasedchallenging
 
levelauditor
judgement
due
to
the
nature
and
extent
 
of
audit
 
effort
required to address these matters, including involvement
the extent of personnel
with specialized
 
skills and
knowledge.
skill or knowledge needed.
The primary procedures we performed to address this critical audit matter
 
included:
●
Assessing the design and implementation and testing operating effectiveness of
certain controls over
the recognition and measurement of uncertain tax positions related
to transfer pricing.
●
Utilizing personnel with specialized knowledge and skill in taxation to evaluate
the appropriateness of
management’s methods and assumptions used to estimate uncertain tax positions related to transfer
pricing by: (i) verifying our understanding of the relevant facts by
reading the Company’s
correspondence with the relevant tax authorities and third-party advice obtained
by the Company, (ii)
evaluatingEvaluating the reasonableness of technical merits, management’s judgmentsthe revenue growth rates used in the determination
of the fair values of the
acquired
customer
relationships
and
lists
in
the
acquisition
of
Shield
by:
(i)
reviewing
the
historical
performance of
the
acquired company
using
their
audited financial
statements, and
(ii)
assessing revenue
projections against industry metrics and assumptions andpeer-group companies.
assessing the overall reasonableness of conclusions reached, (iii)●
Utilizing
 
evaluating the ranges of arm’s length
outcomes and pricing conclusions reached within management’s transfer pricing studies, and (iv)
reviewing settlement activity or agreements with income tax authorities.
personnel
 
with
 
specialized
knowledge
and
skill
in
valuation
to
assist
in:
(i)
testing
the
source
information underlying
the determination
of the
discount rate,
and (ii)
developing a
range of
independent
estimates of discount rates and
comparing those to the discount
rate selected by management in connection
with the determination of the fair value of the acquired customer relationships and lists in
the acquisition of
Shield.
/s/
BDO USA, LLP
P.C.
We have served as the Company's auditor since 1984.
New York,
NY
February 17, 2021
28, 2024
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes.
7265
HENRY SCHEIN, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands,millions, except share and per share data)
 
December 26,30,
December 28,31,
20202023
20192022
ASSETS
Current assets:
Cash and cash equivalents
$
421,185171
$
106,097117
Accounts receivable, net of reservesallowance for credit losses of $
88,03083
 
and $
60,00265
1,424,787
(1)
1,246,2461,863
1,442
Inventories, net
1,512,4991,815
1,428,7991,963
Prepaid expenses and other
432,944639
445,360466
Total current assets
3,791,4154,488
3,226,5023,988
Property and equipment, net
342,004498
329,645383
Operating lease right-of-use assets net
288,847325
231,662284
Goodwill
2,504,3923,875
2,462,4952,893
Other intangibles, net
479,429916
572,878587
Investments and other
366,445471
327,919472
Total assets
$
7,772,53210,573
$
7,151,1018,607
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$
1,005,6551,020
$
880,2661,004
Bank credit lines
73,366264
23,975103
Current maturities of long-term debt
109,836150
109,8496
Operating lease liabilities
64,71680
65,34973
Accrued expenses:
Payroll and related
295,329332
265,206314
Taxes
138,671137
165,171132
Other
595,529700
528,553592
Total current liabilities
2,283,1022,683
2,038,3692,224
Long-term debt
(1)
515,7731,937
622,9081,040
Deferred income taxes
30,06554
64,98936
Operating lease liabilities
238,727310
176,267275
Other liabilities
392,781436
331,173361
Total liabilities
3,460,4485,420
3,233,7063,936
Redeemable noncontrolling interests
327,699864
287,258576
Commitments and contingencies
(nil)
(nil)
Stockholders' equity:
Preferred stock, $
0.01
 
par value,
1,000,000
 
shares authorized,
NaNnone
 
outstanding
0-
0-
Common stock, $
0.01
 
par value,
480,000,000
 
shares authorized,
142,462,571129,247,765
 
outstanding on December 26, 202030, 2023 and
143,353,459131,792,817
 
outstanding on December 28, 201931, 2022
1,4251
1,4341
Additional paid-in capital
0-
47,768-
Retained earnings
3,454,8313,860
3,116,2153,678
Accumulated other comprehensive loss
(108,084)(206)
(167,373)(233)
Total Henry Schein, Inc. stockholders' equity
3,348,1723,655
2,998,0443,446
Noncontrolling interests
636,213634
632,093649
Total stockholders' equity
3,984,3854,289
3,630,1374,095
Total liabilities, redeemable noncontrolling
 
interests and stockholders' equity
$
7,772,53210,573
$
7,151,1018,607
(1)
Amounts presented include balances held by our consolidated variable interest entity (“VIE”).
At December 30, 2023 and
December 31, 2022, includes trade accounts receivable of $
284
million and $
327
million, respectively, and long-term debt of $
210
million and $
255
million, respectively.
See
for further
information.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes.
7366
HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS
 
OF INCOME
(in thousands,millions, except share and per share data)
Years
 
Ended
December 26,30,
December 28,31,
December 29,25,
20202023
20192022
20182021
Net sales
$
10,119,14112,339
$
9,985,80312,647
$
9,417,60312,401
Cost of sales
7,304,7988,478
6,894,9178,816
6,506,8568,727
Gross profit
2,814,3433,861
3,090,8863,831
2,910,7473,674
Operating expenses:
Selling, general and administrative
2,246,9472,956
2,357,9202,771
2,217,2732,634
Litigation settlements
Depreciation and amortization
0210
0182
38,488180
Restructuring and integration costs
32,09380
14,705131
54,3678
Operating income
535,303615
718,261747
600,619852
Other income (expense):
Interest income
9,84217
15,7578
15,4916
Interest expense
(41,377)(87)
(50,792)(35)
(76,016)(27)
Other, net
(3,873)(3)
(2,919)1
(3,258)-
Income from continuing operations before taxes, equity in
earnings of affiliates and noncontrolling interests
499,895542
680,307721
536,836831
Income taxes
(95,374)(120)
(159,515)(170)
(107,432)(198)
Equity in earnings of affiliates,
net of tax
12,34414
17,90015
21,03720
Net gainGain on sale of equity investmentsinvestment
1,572-
186,769-
07
Net income from continuing operations
418,437436
725,461566
450,441
Income (loss) from discontinued operations, net of tax
986
(6,323)
111,685
Net Income
419,423
719,138
562,126660
Less: Net income attributable to noncontrolling interests
(15,629)(20)
(24,770)(28)
(19,724)
Less: Net (income) loss attributable to noncontrolling interests
from discontinued operations
0
366
(6,521)
Net income attributable to Henry Schein, Inc.
$
403,794
$
694,734
$
535,881
Amounts attributable to Henry Schein Inc.:
Continuing operations
$
402,808
$
700,691
$
430,717
Discontinued operations
986
(5,957)
105,164(29)
Net income attributable to Henry Schein, Inc.
$
403,794416
$
694,734538
$
535,881
Earnings per share from continuing operations attributable to
Henry Schein, Inc.:
Basic
$
2.83
$
4.74
$
2.82
Diluted
$
2.81
$
4.69
$
2.80
Earnings (loss) per share from discontinued operations attributable to
Henry Schein, Inc.:
Basic
$
0.01
$
(0.04)
$
0.69
Diluted
$
0.01
$
(0.04)
$
0.68631
Earnings per share attributable to Henry Schein, Inc.:
Basic
$
2.833.18
$
4.703.95
$
3.514.51
Diluted
$
2.823.16
$
4.653.91
$
3.494.45
WeightedWeighted-average common
 
-average common shares outstanding:
Basic
142,504130,618,990
147,817136,064,221
152,656140,090,889
Diluted
143,404131,748,171
149,257137,755,670
153,707
See accompanying notes.
74
HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME
(in thousands)
Years
Ended
December 26,
December 28,
December 29,
2020
2019
2018
Net income
$
419,423
$
719,138
$
562,126
Other comprehensive income (loss), net of tax:
Foreign currency translation gain (loss)
63,094
(4,070)
(136,356)
Unrealized gain (loss) from foreign currency hedging activities
(7,456)
(3,876)
626
Unrealized investment gain (loss)
(5)
12
(3)
Pension adjustment gain (loss)
143
(5,924)
3,033
Other comprehensive income (loss), net of tax
55,776
(13,858)
(132,700)
Comprehensive income
475,199
705,280
429,426
Comprehensive income attributable to noncontrolling interests:
Net income
(15,629)
(24,404)
(26,245)
Foreign currency translation loss
3,513
1,848
13,996
Comprehensive income attributable to noncontrolling interests
(12,116)
(22,556)
(12,249)
Comprehensive income attributable to Henry Schein, Inc.
$
463,083
$
682,724
$
417,177141,772,781
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes.
67
HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS
 
OF COMPREHENSIVE INCOME
(in millions)
Years
 
Ended
December 30,
December 31,
December 25,
2023
2022
2021
Net income
$
436
$
566
$
660
Other comprehensive income, net of tax:
Foreign currency translation gain (loss)
53
(88)
(84)
Unrealized gain (loss) from hedging activities
(18)
7
9
Pension adjustment gain (loss)
(3)
12
6
Other comprehensive income (loss), net of tax
 
32
(69)
(69)
Comprehensive income
468
497
591
Comprehensive income attributable to noncontrolling interests:
Net income
(20)
(28)
(29)
Foreign currency translation loss (gain)
(5)
7
6
Comprehensive income attributable to noncontrolling interests
(25)
(21)
(23)
Comprehensive income attributable to Henry Schein, Inc.
$
443
$
476
$
568
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes.
7568
HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS
 
OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, in millions,
except share and per share data)
Accumulated
Common Stock
Additional
 
Other
Total
$.01 Par Value
Paid-in
Retained
Comprehensive
Noncontrolling
Stockholders'
Shares
Amount
 
Capital
Earnings
 
Income (Loss)
Interests
Equity
Balance, December 30, 2017
26, 2020
153,690,146142,462,571
1,537$
01
2,940,029$
(130,067)-
12,911$
2,824,4103,455
Cumulative impact of adopting new accounting standards$
0(108)
0$
2,594636
0$
0
2,5943,984
Net income (excluding $
21,84823
 
attributable to Redeemable
noncontrolling interests)
0-
0-
535,881-
0631
4,397-
540,2786
637
Foreign currency translation loss (excluding loss of $
13,0316
attributable to Redeemable noncontrolling interests)
-
0-
0-
0-
(122,360)(78)
(965)-
(123,325)(78)
Unrealized gain from foreign currency hedging activities,
net of tax benefit of $
396
-
0
0
0
626
0
626
Unrealized investment loss, net of tax benefit of $
0
-
0
0
0
(3)
0
(3)
Pension adjustment gain, net of tax of $
1,1793
-
0
0
0
3,033
0
3,033
Dividends paid
-
-
0-
0
0
0
(656)
(656)
Other adjustments
9
-
09
(19)Pension adjustment gain, including tax of $
0
0
713
694
Purchase of noncontrolling interests
2
-
0-
0-
0-
06
(214)-
(214)6
Distributions to noncontrolling shareholders
-
-
-
-
-
(11)
(11)
Change in fair value of redeemable securities
-
0-
(148,919)(160)
0-
0-
0-
(148,919)(160)
Initial noncontrollingNoncontrolling interests and adjustments related to
business acquisitions
-
0-
0-
0-
0-
564,2707
564,2707
Repurchase and retirement of common stock
(2,518,387)(5,505,704)
(25)-
(36,206)(53)
(163,769)(348)
0-
0-
(200,000)
Stock issued upon exercise of stock options
153,516
1
3,075
0
0
0
3,076(401)
Stock-based compensation expense
340,794303,643
4-
36,23678
0-
0-
0-
36,24078
Shares withheld for payroll taxes
(267,772)
(3)
(18,140)
0
0
0
(18,143)
Settlement of stock-based compensation awards
3,371
0
(727)
0
0
0
(727)
Deferred tax benefit arising from acquisition of
noncontrolling interest in partnership(114,952)
-
0(8)
58,554-
0-
0-
0
58,554(8)
Transfer of charges in excess of capital
-
0-
106,146143
(106,146)(143)
0-
0-
0-
Balance, December 29, 2018
25, 2021
151,401,668137,145,558
1,514
0
3,208,589
(248,771)
580,456
3,541,788
Cumulative impact of adopting new accounting standards1
-
03,595
0(171)
(274)638
0
0
(274)4,063
Net income (excluding $
14,83821
 
attributable to Redeemable
noncontrolling interests from continuing operations
and ($
366
from discontinued operations)interests)
-
0-
0-
694,734538
0-
9,9327
704,666545
Foreign currency translation loss (excluding loss of $
2,3356
attributable to Redeemable noncontrolling interests
and ($
592
gain from discontinued operations)interests)
-
0
0
0
(2,222)
(105)
(2,327)
Unrealized loss from foreign currency hedging activities,
net of tax benefit of $
1,035-
-
0-
0(81)
0(1)
(3,876)
0
(3,876)(82)
Unrealized investment gain from hedging activities,
net of tax of $
23
-
0-
0-
0-
127
0-
127
Pension adjustment loss, net ofgain, including tax benefit of $
1,8064
-
0
0
0
(5,924)
0
(5,924)
Dividends paid
-
-
0-
0
0
0
(535)
(535)
Other adjustments
12
-
012
(3)Distributions to noncontrolling shareholders
0-
0-
0-
(3)-
-
(1)
(1)
Purchase of noncontrolling interests
-
-
-
-
-
(7)
(7)
Change in fair value of redeemable securities
-
0-
7,3004
0-
0-
0-
7,3004
Initial noncontrollingNoncontrolling interests and adjustments related to
business acquisitions
-
0-
0-
0-
0-
42,34513
42,345
Adjustment for Animal Health Spin-off
87,629
1
0
0
0
0
113
Repurchase and retirement of common stock
(8,173,912)(6,111,676)
(82)-
(79,785)(65)
(445,133)(420)
0-
0-
(525,000)(485)
Stock issued upon exercise of stock options
2,52635,792
0-
342
0-
0-
0-
342
Stock-based compensation expense
215,4081,102,108
2-
45,24354
0-
0-
0-
45,24554
Shares withheld for payroll taxes
(179,860)(376,034)
(1)-
(10,844)(32)
0-
0-
0-
(10,845)(32)
Settlement of stock-based compensation awards
0
0
160
0
0
0
160
Share Sale related to Animal Health business(2,931)
-
0
361,090
0
0
0
361,090
Separation of Animal Health business2
-
0-
(73,970)-
(543,158)
93,408
0
(523,720)2
Transfer of charges in excess of capital
-
0-
(201,457)35
201,457(35)
0-
0-
0-
Balance, December 28, 2019
31, 2022
143,353,459131,792,817
1,434
47,768
3,116,215
(167,373)
632,093
3,630,137
Cumulative impact of adopting new accounting standards1
-
03,678
0(233)
(412)649
0
0
(412)4,095
Net income (excluding $
13,3636
 
attributable to Redeemable
noncontrolling interests from continuing operations)interests)
-
0-
0-
403,794416
0-
2,26614
406,060430
Foreign currency translation gain (excluding lossgain of $
4,2795
attributable to Redeemable noncontrolling interests )interests)
-
0-
0-
0-
66,60748
766-
67,37348
Unrealized loss from foreign currency hedging activities,
net of tax benefit of $
2,768
-
0
0
0
(7,456)
0
(7,456)
Unrealized investment loss, net of tax benefit of $
1
-
0
0
0
(5)
0
(5)
Pension adjustment gain, including tax benefit of $
6767
-
0-
-
-
(18)
-
(18)
Pension adjustment loss, including tax benefit of $
0
0
143
0
143
Dividends paid
-
-
0
0
0
0
(1,086)
(1,086)
Purchase of noncontrolling interests
-
-
0(3)
(1,597)-
0(3)
0Distributions to noncontrolling shareholders
(701)-
(2,298)-
-
-
-
(27)
(27)
Change in fair value of redeemable securities
-
0-
(32,842)11
0-
0-
0-
(32,842)11
Initial noncontrollingNoncontrolling interests and adjustments related to
business acquisitions
-
0-
0-
0-
0-
2,875(2)
2,875(2)
Repurchase and retirement of common stock
(1,200,000)(3,214,136)
(12)-
(10,949)(33)
(62,828)(219)
0-
0-
(73,789)(252)
Stock issued upon exercise of stock options
21,068
-
1
-
-
-
1
Stock-based compensation expense
545,8641,065,319
5-
8,78339
0-
0-
0-
8,78839
Shares withheld for payroll taxes
(236,752)(416,605)
(2)-
(14,475)(34)
0-
0-
0-
(14,477)(34)
Settlement of stock-based compensation awards
(698)
-
0
(275)
0
0
0
(275)
Separation of Animal Health business1
-
0-
1,649-
0
0
0
1,6491
Transfer of charges in excess of capital
-
0-
1,93815
(1,938)(15)
0-
0-
0-
Balance, December 26, 2020
30, 2023
142,462,571129,247,765
1,425$
01
3,454,831$
(108,084)-
636,213$
3,984,3853,860
$
(206)
$
634
$
4,289
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes.
7669
HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS
 
OF CASH FLOWS
(in thousands, except per share data) (unaudited)millions)
Years Ended
December 26,30,
December 28,31,
December 29,25,
20202023
20192022
20182021
Cash flows from operating activities:
Net income
$
419,423436
$
719,138566
$
562,126
Income (loss) from discontinued operations
986
(6,323)
111,685
Income from continuing operations
418,437
725,461
450,441660
Adjustments to reconcile net income to net cash provided
 
by operating activities:
Depreciation and amortization
185,538248
184,942212
143,630210
Impairment charge on intangible assets
20,2757
034
01
Impairment of capitalized software
27
-
-
Non-cash restructuring charges
27
93
-
Gain on sale of equity investmentsinvestment
(2,096)-
(250,167)-
0(10)
Stock-based compensation expense
8,78839
44,92054
32,62178
Provision for (benefits from) losses on trade and other
accounts receivable
35,13718
12,6125
14,384(8)
Benefit from deferred income taxes
(52,977)(20)
(4,057)(73)
(25,388)(11)
Equity in earnings of affiliates
(12,344)(14)
(17,900)(15)
(21,037)(20)
Distributions from equity affiliates
16,00215
71,46915
20,38618
Changes in unrecognized tax benefits
(24,881)10
1,94112
(1,169)
Benefit from transition tax
0
0
(10,000)(2)
Other
5,012(3)
5,684(20)
369(10)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
(189,349)(327)
(72,689)(7)
(127,201)4
Inventories
(31,817)231
14,702(126)
(41,042)(295)
Other current assets
(6,479)(138)
(57,291)(52)
(165,645)9
Accounts payable and accrued expenses
224,273(56)
160,851(96)
180,60686
Net cash provided by operating activities from continuing
operations
593,519500
820,478602
450,955
Net cash provided by (used in) operating activities from
discontinued operations
5,391
(166,391)
233,751
Net cash provided by operating activities
598,910
654,087
684,706710
Cash flows from investing activities:
Purchases of fixed assets
property and equipment
(48,829)(147)
(76,219)(96)
(71,283)(79)
Payments related to equity investments and business acquisitions,
acquisitions, net of cash acquired
(60,173)(955)
(655,879)(158)
(53,240)(571)
Proceeds from sale of equity investment
14,020-
307,251-
1,00010
RepaymentsProceeds from (borrowings for) loan to affiliate
(1,243)6
16,71311
(25,700)(4)
Settlements for net investment hedges
22
-
-
Capitalized software costs
(40)
(32)
(33)
Other
(18,794)(21)
(14,175)(1)
(15,101)-
Net cash used in investing activities from continuing operations
(115,019)(1,135)
(422,309)(276)
(164,324)
Net cash used in investing activities from discontinued operations
0
(2,064)
(28,630)
Net cash used in investing activities
(115,019)
(424,373)
(192,954)(677)
Cash flows from financing activities:
Net change in bank borrowings
credit lines
45,082153
(927,912)48
210,741(18)
Proceeds from issuance of long-term debt
501,4211,368
741270
115,000305
Principal payments for long-term debt
(611,216)(468)
(260,944)(59)
(24,735)(122)
Debt issuance costs
(3,879)(3)
(391)-
(501)
Debt extinguishment costs
(401)
0
0(3)
Proceeds from issuance of stock upon exercise of stock options
01
342
3,076-
Payments for repurchases and retirement of common stock
(73,789)(250)
(525,000)(485)
(200,000)(401)
Payments for taxes related to shares withheld for employee
 
taxes
(14,299)(34)
(10,814)(32)
(18,023)(8)
Distribution received relatedDistributions to Animal Health Spin-off
0
1,120,000
0
Proceeds related to Animal Health Share Sale
0
361,090
0
Proceeds from (distributions to) noncontrolling shareholders
(7,886)(47)
51,498(21)
(7,351)(26)
Acquisitions of noncontrolling interests in subsidiaries
(19,538)(19)
(2,358)(38)
(287,635)
Proceeds from (payments) to Henry Schein Animal Health
Business
2,711
(169,295)
(192,745)
Net cash used in financing activities from continuing operations
(181,794)
(363,351)
(402,173)(60)
Net cash provided by (used in) financing activities from
discontinued operations
(5,391)701
147,371(315)
(201,603)
Net cash used in financing activities
(187,185)
(215,980)
(603,776)(333)
Effect of exchange rate changes on cash and cash equivalents from continuing
operations
18,382(12)
14,394(12)
14,425
Effect of exchange rate changes on cash and cash equivalents from discontinued
operations
0
(2,240)
3,150(3)
Net change in cash and cash equivalents from continuing
operations
315,08854
49,212(1)
(101,117)
Net change in cash and cash equivalents from discontinued
operations
0
(23,324)
6,668(303)
Cash and cash equivalents, beginning of period
106,097117
56,885118
158,002421
Cash and cash equivalents, end of period
$
421,185171
$
106,097117
$
56,885118
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
 
FINANCIAL STATEMENTS
(in thousands,millions, except share and per share data)
70
77
Note 1 –Significant– Basis of Presentation and Significant Accounting Policies
 
Nature of Operations
We distribute health care products and services primarily to office-based dental and medical practitioners, across
dental practices, laboratories, physician practices, and ambulatory surgery centers,
as well as government,
institutional health care clinics and alternate care clinics.
We also provide software, technology and other value-
added services to health care practitioners.
Our dental businesses serve office-based dental practitioners, withdental
laboratories, schools, government and other institutions.
Our medical businesses serve physician offices, urgent
care centers, ambulatory care sites, emergency medical technicians, dialysis centers,
home health, federal and state
governments and large enterprises, such as group practices and integrated delivery
networks, among other providers
across a wide range of specialties.
We have operations or
affiliates in the United States, Australia, Austria, Belgium, Brazil, Canada, Chile,
China, the
Czech Republic,
France, Germany, Hong Kong SAR, Ireland, Israel, Italy, Japan, Liechtenstein, Luxembourg,
Malaysia, Mexico, Morocco, the
Netherlands, New Zealand, Poland, Portugal,
Singapore, South Africa, Spain,
Sweden, Switzerland, Thailand,
United Arab Emirates and the United Kingdom.
Principles
Basis of Consolidation
Presentation
Our consolidated financial statements include the accounts of Henry
 
Schein, Inc. and all of our controlled
subsidiaries.
 
All intercompany accounts and transactions are eliminated in
 
consolidation.
 
Investments in
unconsolidated affiliates which are greater than or equal to 20% and less than or equal
to 50% owned or
investments in unconsolidated affiliates of less than 20% infor which we have the ability
to influence the operating or
financial decisions are
accounted for under the equity method.
 
Certain prior period amounts have been reclassified
to conform
to the
current period presentation.
These reclassifications, individually and in the aggregate, did not
have a material
impact on our consolidated financial condition, results of operations
or cash flows.
We consolidate a Variable
Interest Entity (“VIE”) where we hold a variable interest
and are the primary
beneficiary.
The VIE is a trade accounts receivable securitization.
We are the primary beneficiary because we
have the power to direct activities that most significantly affect the economic performance
and have the obligation
to absorb the majority of the losses or benefits.
The results of operations and financial position of this VIEa trade accounts receivable securitization which
we consider a Variable Interest Entity (“VIE”) because we are its primary beneficiary as we have the power to
direct activities that most significantly affect its economic performance and have
 
arethe obligation to absorb the
included in our consolidated financial statements.majority of its losses or benefits.
 
For the consolidatedthis VIE, the trade accounts receivable transferred
 
to the VIE are pledged as
collateral to the
related debt.
 
The VIE’s creditors have recourse to us for losses on these trade
accounts receivable.
 
At December 26,
202030, 2023 and December 28, 2019,31, 2022,
certain trade accounts receivable that can only
be used to settle
obligations of this VIE were
$
0.0284
 
million and $
127327
 
million, respectively, and the liabilities of thethis VIE where the
creditors have recourse to us
were $
0.0210
 
million and $
100255
 
million, respectively.
 
Fair Value
Measurements
Fair value is defined as the price that would be received to sell an asset or
paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
The fair value hierarchy distinguishes between
(1) market participant assumptions developed based on market data obtained
from independent sources (observable
inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best
information available in the circumstances (unobservable inputs).
The fair value hierarchy consists of three broad levels, which gives the
highest priority to unadjusted quoted prices
in active markets for identical assets or liabilities (Level 1) and the lowest priority
to unobservable inputs (Level 3).
The three levels of the fair value hierarchy are described as follows:
•
Level 1— Unadjusted quoted prices in active markets for identical assets
or liabilities that are accessible at the
measurement date.
•
Level 2— Inputs other than quoted prices included within Level 1 that are
observable for the asset or liability,
either directly or indirectly.
Level 2 inputs include: quoted prices for similar assets or liabilities
in active markets;
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
71
quoted prices for identical or similar assets or liabilities in markets
that are not active; inputs other than quoted
prices that are observable for the asset or liability; and inputs that are
derived principally from or corroborated by
observable market data by correlation or other means.
•
Level 3— Inputs that are unobservable for the asset or liability.
See
for additional information.
Use of Estimates
The preparation of consolidated financial statements in conformity with
accounting principles
generally accepted in
the United
States requires us to make estimates and assumptions that
affect the reported amounts of
assets and
liabilities and
disclosure of contingent assets and liabilities at the date of
the financial
statements and the reported
amounts of
revenues and expenses during the reporting period.
 
Actual results could differ from those estimates.
In March 2020, the World Health Organization declared the Novel Coronavirus Disease 2019 (“COVID-19”) a
pandemic. The COVID-19 pandemic has negatively impacted the global
economy, disrupted global supply chains
and created significant volatility and disruption of global financial markets.
In response, many countries
implemented business closures and restrictions, stay-at-home and social
distancing ordinances and similar measures
to combat the pandemic, which significantly impacted global business
and dramatically reduced demand for dental
products and certain medical products in the second quarter of 2020.
Demand increased in the second half of the
year resulting in growth over the prior year driven by sales of personal
protective equipment (PPE) and COVID-19
related products.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in thousands, except per share data)
78
Our consolidated financial statements reflect estimates and assumptions
 
made by us that affect, among other things,
our goodwill, long-lived asset and indefinite-liveddefinite-lived intangible asset valuation;
 
inventory valuation; equity investment
valuation; assessment of the annual effective tax rate; valuation of deferred income
 
taxes and income tax
contingencies; the allowance for doubtful accounts; redeemable noncontrolling
interests; hedging activity; vendorsupplier
rebates; measurement of
compensation cost for certain share-based
performance awards and cash bonus
plans; and
pension plan assumptions.
assumptions.
Due to the significant uncertainty surrounding the future impact
of COVID-19, our judgments
regarding estimates and impairments could change in the future.
In addition, the impact of COVID-19 had a
material adverse effect on our business, results of operations and cash flows in the
second quarter of 2020. In the
latter half of the year, dental and medical practices began to re-open worldwide, and continued to do so
during the
remainder of the year.
However, patient volumes remain below pre-COVID-19 levels and certain regions in the
U.S. and internationally are experiencing an increase in COVID-19
cases.
As such, there is an ongoing risk that the
COVID-19 pandemic may again have a material adverse effect on our business, results
of operations and cash
flows and may result in a material adverse effect on our financial condition
and liquidity.
However, the extent of
the potential impact cannot be reasonably estimated at this time.
 
Fiscal Year
We report our results of operations and cash flows on a
52
-
or
53
 
weekweeks per fiscal year basis ending on the last
Saturday of December.
The yearsyear ended December 26, 2020, December 28, 2019 and December
29, 201830, 2023 consisted of
52
 
weeks.weeks, and the years ended December
31, 2022 and December 25, 2021 consisted of
53
weeks and
52
weeks, respectively.
 
Revenue Recognition
 
Revenue is recognized when a customer obtains control of promised goods
 
or services in an amount that reflects the
consideration that we expect to receive for those goods or services.
 
To recognize revenue, we do the following:
we:
•
 
identify the contract(s) with a customer;
 
•
 
identify the performance obligations in the contract;
 
•
 
determine the transaction price;
 
•
 
allocate the transaction price to the performance obligations in the contract;
 
and
 
•
 
recognize revenue when, or as, the entity satisfieswe satisfy a performance obligation.
We generate revenue from the sale of dental and medical consumable products, equipment (Health care distribution
revenues), software products and services and other sources (Technology and value-added services revenues).
 
Provisions for discounts, rebates to customers, customer returns and other
 
contra revenue adjustments are included
in the transaction price at contract inception by estimating the most likely
 
amount based upon historical data and
estimates and are provided for in the period in which the related sales are
 
recognized.
Revenue derived from the sale of consumable products is recognized at a pointthe
 
point in time when control transfers to the
the customer.
 
Such sales typically entail high-volume, low-dollar orders shipped
 
shipped using third-party common
carriers.
 
We believe that the shipment date is the most appropriate point in time indicating control has transferred
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
72
to the customer.
customer becauseOn the shipment date, we have no post-shipment obligations, and this is when
 
legal title and risks and rewards of
ownership transfer to the customer and the point at which we have an enforceable right
 
enforceable right to payment.
Revenue derived from the sale of equipment is recognized when control
 
transfers to the customer.
 
This occurs
when the equipment is delivered.
 
Such sales typically entail scheduled deliveries of large equipment primarily
 
by
equipment service technicians.
 
SomeMost equipment sales requirerequires minimal installation, which is
 
is typically completed at the
the time of delivery.
 
Our product generally carries standard warranty terms provided
 
by the manufacturer,
manufacturer; however, in
instances where we provide warranty labor services, the warranty costs
are accrued
in accordance with Accounting
Accounting Standards Codification (“ASC”) Topic 460 “Guarantees”.Guarantees.
 
At December 30, 2023 and December 31, 2022, we had
accrued approximately $
12
million and $
 
HENRY SCHEIN, INC.
million, respectively, for warranty costs.
 
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in thousands, except per share data)
79
Revenue derived from the sale of software products is recognized when products
 
products are shippeddelivered to customers or made
made available electronically.
 
Such software is generally installed by customers and does
 
not require extensive training
due to the nature of its design.training.
 
Revenue derived from post-contract customer support for software,
 
including annual
support and/or
training, is generally recognized over time using time elapsed
as the input method
that best depicts
the transfer of
control to the customer.
 
Revenue derived from software sold on a Software-as-a-Service
basis is recognized ratably
over the subscription period as control is transferred to the customer.
Revenue derived from other sources, including freight charges, equipment repairs and financial
 
and financial services, is
recognized when the related product revenue is recognized or when
 
the services are provided.
 
We apply the
practical expedient to treat shipping and handling activities performed after the
 
the customer obtains control as
fulfillment activities, rather than a separate performance obligation in the
 
contract.
Sales, value-add and other taxes we collect concurrent with revenue-producing
 
activities are excluded from
revenue.
CertainSome of our revenue is derived from bundled arrangements that include
 
multiple distinct performance obligations,
which are accounted for separately.
 
When we sell software products together with related services (i.e.,
 
training
and technical support), we allocate revenue to software usingby the residual
 
method, using an estimate of the standalone
standalone selling price to estimate the fair value of the undelivered
elements.
There are no cases where revenue is
deferred due to a lack of a standalone selling price.
 
Bundled arrangements that include elements
that are not
considered software consist primarily of equipment and the related
 
installation service.
 
We allocate
revenue for
such arrangements based on the relative selling prices of the goods
or services.
 
If an observable selling
price is not
available (i.e., because we or others do not sell the goods or
services separately), we
use one of the
following techniques to estimate
the standalone selling price: adjusted
 
adjusted market approach; cost-plus approach; or the
residual
method.
 
There is no
specific hierarchy for the use of these methods,
but the estimated selling
price reflects
our best estimate of what the
selling prices of each deliverable would be
if it were sold regularly on
a standalone
basis taking into consideration
the cost structure of our business, technical skill
required, customer
location and
other market conditions.
See
 
for additional disclosures of disaggregated net sales and
 
for disclosures of net sales by segment and geographic data.
Sales Returns
Sales returns are recognized as a reduction of revenue by the amount
of expected returns and are recorded as refund
liability within accrued expenses-other within our consolidated balance sheets.
We estimate the sales return
liability based on historical data for specific products, adjusted as necessary
for new products.
The allowance for
returns is presented gross as a refund liability and we record an inventory
asset (and a corresponding adjustment to
cost of sales) for any products that we expect to be returned
and resaleable.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
73
Contract Balances
Cost of Sales
The primary components of cost of sales include the cost of the product
 
(net of purchase discounts, supplier
Contract balanceschargebacks and rebates) and inbound and outbound freight charges.
Costs related to purchasing, receiving, inspections, warehousing,
internal inventory transfers and other costs of our
distribution network are included in selling, general and administrative
expenses along with other operating costs.
Total distribution network costs were $
105
million, $
103
million and $
89
million for the years ended December 30,
2023, December 31, 2022 and December 25, 2021, respectively.
Supplier Rebates
Supplier rebates are included as a reduction of cost of sales and are recognized
over the period they are earned.
The
factors we consider in estimating supplier rebate accruals include forecasted
inventory purchases,
sales, supplier
rebate contract terms, which generally provide for increasing rebates based
on either increased purchase or sales
volumes.
Direct Shipping and Handling Costs
Freight and other direct shipping costs are included in cost of sales.
Direct handling costs, which represent amounts presented
primarily direct compensation costs of employees who pick, pack and otherwise
prepare, if necessary, merchandise
for shipment to our customers are reflected in selling, general and administrative
expenses.
Direct handling costs
were $
98
million, $
96
million and $
97
million for the years ended December 30, 2023, December 31, 2022
and
December 25, 2021, respectively.
Advertising and Promotional Costs
We expense advertising and promotional costs as incurred.
Total advertising and promotional expenses were $
47
million, $
47
million and $
48
million for the years ended December 30, 2023, December 31, 2022 and
December
25, 2021, respectively.
Stock-Based Compensation Costs
We
measure stock-based compensation at the grant date, based on the estimated
fair value of the award, and
recognize the cost (net of estimated forfeitures) as compensation expense on
a straight-line basis over the requisite
service period for time-based restricted stock units and on a graded vesting
basis for the option awards.
For
performance-based awards, at each reporting date, we reassess whether achievement
of the performance condition
is probable and accrue compensation expense when achievement of
the performance condition is probable.
Our
stock-based compensation expense is reflected in selling, general and administrative
expenses.
Employment Benefit Plans and other Postretirement Benefit Plans
Some of our employees in our consolidated balanceinternational markets participate
 
sheet whenin various noncontributory defined benefit plans.
We recognize the funded status, measured as the difference between the fair value of plan assets and the projected
benefit obligation.
Each unfunded plan is recognized as a liability and each funded
plan is recognized as either we have transferredan
goodsasset or servicesliability based on its funded status.
We measure our plan assets and liabilities at the end of our fiscal year.
Net periodic pension costs and valuations are dependent on assumptions
used by third-party actuaries in calculating
those amounts.
These assumptions include discount rates, expected return on plan
assets, rate of future
compensation levels, retirement rates, mortality rates, and other factors.
We record the service cost component of
net pension cost in selling, general and administrative expenses within
our consolidated statements of income.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
74
Gains and losses that result from changes in actuarial assumptions or
from actual experience that differs from
actuarial assumptions are recognized in and then amortized from Accumulated
other comprehensive income (loss).
Cash and Cash Equivalents
We consider all highly liquid short-term investments with an original maturity of three months or less to be cash
equivalents.
Due to the customer or the customer has paid consideration to usshort-term maturity of such investments,
 
under the contract.carrying amounts are a reasonable estimate of
fair value.
 
These contractOutstanding checks in excess of funds on deposit of $
balances include accounts receivable, contract assets and contract liabilities.52
 
million and $
53
million, primarily related to
payments for inventory, were classified as accounts payable as of December 30, 2023 and December 31, 2022.
Accounts Receivable
and Allowance for Credit Losses
Accounts receivable are generally recognized when health care distribution
 
and technology and value-added
services revenues are recognized.
 
In accordance with the “expected credit loss” model, the carrying amount
 
of
accounts receivable is reduced by a valuation allowance that reflects
 
our best estimate of the amounts that we do
not expect to collect.
 
In addition to reviewing delinquent accounts receivable, we consider many
 
factors in
estimating our reserve, including types of customers and their credit worthiness,
 
experience and historical data
adjusted for current conditions and reasonable supportable forecasts.
 
We
record allowances for credit losses based upon a specific review of all
significant outstanding invoices.
For
those invoices not specifically reviewed, provisions are provided at differing rates,
based upon the age of the
receivable, the collection history associated with the geographic region
that the receivable was recorded in, current
economic trends and reasonable supportable forecasts.
We
write-off a receivable and charge it against its recorded
allowance when we deem them uncollectible.
Our net accounts receivable balance was $
1,863
million, $
1,442
million, and $
1,452
million at December 30, 2023,
December 31, 2022, and December 25, 2021, respectively.
Our allowance for credit losses was $
83
million, $
65
million $
67
million, and $
88
million as of December 30, 2023, December 31, 2022, December 25, 2021,
and
December 26, 2020, respectively.
Additions to the allowance for the years ended December 30, 2023,
December
31, 2022 and December 25, 2021 were $
34
million, $
8
million and $
0
million, respectively.
Deductions to the
allowance for the years ended December 30, 2023, December 31, 2022
and December 25, 2021, were $
16
million,
$
10
million and $
21
million
, respectively.
Contract Assets
Contract assets include amounts related to any conditional right to consideration
 
for work completed but not billed
as of the reporting date and generally represent amounts owed to us bydate.
 
customers, but not yet billed. Contract assets
are transferred to accounts receivable when
the right becomes
unconditional.
 
The contract assets primarily relate to
our bundled arrangements for
the sale of equipment and
consumables and
sales of term software licenses.
 
Current
contract assets are included in Prepaid expenses and
other and the non-current
contract assets are included in
investments and other
 
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in thousands, except per share data)
80
Investments and other within our consolidated balance
sheets.
 
Current and non-current contract asset balances as of
December 26, 202030,
2023 and December 28, 201931, 2022 were not material.
material.
Contract Liabilities
Contract liabilities are comprised of advance payments and upfront payments
 
for service arrangements provided
over time that are accounted for as deferred revenue amounts.
 
Contract liabilities are transferred to revenue once
the performance obligation has been satisfied.
 
Current contract liabilities are included in Accruedaccrued expenses:
Other other
and the non-current contract liabilities are included in Otherother liabilities within
 
within our consolidated balance sheets.
 
At
December 28, 2019,30, 2023 and December 31, 2022, the current portion ofand non-current contract
liabilities ofwere $
70.889
 
million was reported in Accrued expenses:and
Other, and $
6.29
 
million, related to non-current contract liabilities were reportedand $
86
 
in Other liabilities.million and $
8
 
million, respectively. During the year
ended December 26, 2020,
30, 2023, we recognized
substantially all of the current contract liability amounts that were previously
 
deferred at December 31, 2022.
At
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
75
December 25, 2021, the current and non-current contract liabilities were
$
89
million and $
10
million.
During the
year ended December 31, 2022, we recognized substantially all of the current
contract liability amounts that were
previously deferred at December 28, 2019.25, 2021.
 
AtCurrent contract liabilities at December 26, 2020, the current and non-current portion30, 2023 included
balances of contract
liabilities were $
71.59
 
million and $
8.2
million, respectively.
Deferred Commissions
Sales commissions earned by our sales force that relate to long term
arrangements are capitalized as costs to obtain
a contract when the costs incurred are incremental and are expected to be recovered.
Deferred sales commissions
are amortized over the estimated customer relationship period.
We apply the practical expedient related to the
capitalization of incremental costs of obtaining a contract, and recognize such costs as an expense when incurred if
the amortization period of the assets that we would have recognized is one year or less.
business acquisitions completed in 2023.
 
Our deferred commissionAcquisition-related contract liability amounts at
balances as of December 26, 202031, 2022 and December 28, 201925, 2021 were not
immaterial.
material.
Sales Returns
Sales returns are recognized as a reduction of revenue by the amount
of expected returns and are recorded as refund
liability within current liabilities.
We estimate the amount of revenue expected to be reversed to calculate the sales
return liability based on historical data for specific products, adjusted
as necessary for new products.
The
allowance for returns is presented gross as a refund liability and we
record an inventory asset (and a corresponding
adjustment to cost of sales) for any products that we expect to be returned.
Inventories and Reserves
 
Inventories consist primarily of finished goods and are valued at
 
the lower of cost or net realizable value.
 
Cost is
determined by the weighted-average first-in, first-out method for merchandise or
and by actual cost
for large
equipment and high tech
equipment.
 
In accordance with our policy for inventory valuation, we consider
 
consider many
factors including the
condition and salability of the inventory, historical sales, forecasted sales and market and
economic trends.
 
From
time to time, we adjust our assumptions for anticipated
changes in any
of these or other
factors expected to affect
the value of inventory.
Cash and Cash Equivalents
We consider all highly liquid short-term investments with an original maturity of three months or less to be cash
equivalents.
Due to the short-term maturity of such investments, the
carrying amounts are a reasonable estimate of
fair value.
Outstanding checks in excess of funds on deposit of $
1.3
million and $
29.5
million, primarily related to
payments for inventory, were classified as accounts payable as of December 26, 2020 and December 28, 2019.
Direct Shipping and Handling Costs
Freight and other direct shipping costs are included in cost of sales.
Direct handling costs, which represent
primarily direct compensation costs of employees who pick, pack and otherwise
prepare, if necessary, merchandise
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in thousands, except per share data)
81
for shipment to our customers are reflected in selling, general and administrative
expenses.
Direct shipping and
handling costs were $
79.2
million, $
73.8
million and $
70.6
million for the years ended December 26, 2020,
December 28, 2019 and December 29, 2018.
Advertising and Promotional Costs
We generally expense advertising and promotional costs as incurred.
Total advertising and promotional expenses
were $
30.8
million, $
25.2
million and $
12.9
million for the years ended December 26, 2020, December 28, 2019
and December 29, 2018.
Supplier Rebates
Supplier rebates are included as a reduction of cost of sales and are recognized
over the period they are earned.
The
factors we consider in estimating supplier rebate accruals include forecasted
inventory purchases and sales, in
conjunction with supplier rebate contract terms, which generally provide
for increasing rebates based on either
increased purchase or sales volume.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation or
amortization.
 
Depreciation is
computed primarily under the straight-line method
 
(seeusing estimated useful lives (See
for estimated useful
lives).
 
Amortization of leasehold improvements is computed using the straight-line
 
the straight-line method
over the lesser of the
useful life of the assets or the remaining lease term.
 
Capitalized Software Development Costs
Capitalized internal-use software costs consist of costs to purchase and develop
 
develop software.
 
Costs For software to be used
solely to meet internal needs and for cloud-based applications used to deliver
our services, we capitalize costs
incurred during the application
development stage for software bought and further customized by outside suppliersinclude such costs within
 
for our use and software
developed by a supplier for our proprietary use are capitalized.
Costs incurred for our own personnel who are
directly associated with software development are capitalized.
Income Taxes
We account for income taxes under an asset and liability approach that requires the recognition of deferred income
tax assets and liabilities for the expected future tax consequences of events
that have been recognized in our
financial statements or tax returns.
In estimating future tax consequences, we generally consider all expected
future
events other than enactments of changes in tax laws or rates.
The effect on deferred income tax assets and
liabilities of a change in tax rates is recognized as income or expense in
the period that includes the enactment date.
We file a consolidated U.S. federal income tax return with our
80
% or greater owned U.S. subsidiaries.
Foreign Currency Translation
and Transactions
The financial position and results of operations of our foreign subsidiaries
are determined using local currency as
the functional currency.
Assets and liabilities of these subsidiaries are translated at the exchange
rate in effect at
each year-end.
Income statement accounts are translated at the average rate
of exchange prevailing during the year.
Translation adjustments arising from the use of differing exchange rates from period to period are included
in
Accumulated other comprehensive income in stockholders’ equity.
Gains and losses resulting from foreign
currency transactions are included in earnings.
Risk Management and Derivative Financial Instruments
We use derivative instruments to minimize our exposure to fluctuations in foreign currency exchange rates.
Our
objective is to manage the impact that foreign currency exchange rate fluctuations
could have on recognized asset
and liability fair values, earnings and cash flows, as well as our net
investments in foreign subsidiaries.
Our risk
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in thousands, except per share data)
82
management policy requires that derivative contracts used as hedges be
effective at reducing the risks associated
with the exposure being hedged and be designated as a hedge at the inception
of the contract.
We do not enter into
derivative instruments for speculative purposes.
Our derivative instruments primarily include foreign currency
forward agreements related to certain intercompany loans, certain forecasted
inventory purchase commitments with
foreign suppliers and foreign currency forward contracts to hedge a portion of our
euro-denominated foreign
operations which are designated as net investment hedges.
Foreign currency forward agreements related to forecasted inventory
purchase commitments with foreign suppliers
and foreign currency swaps related to foreign currency denominated debt are designated
as cash flow hedges.
For
derivatives that are designated and qualify as cash flow hedges, the
changes in the fair value of the derivative is
recorded as a component of Accumulated other comprehensive income
in stockholders’ equity and subsequently
reclassified into earnings in the period(s) during which the hedged transaction
affects earnings.
We classify the
cash flows related to our hedging activities in the same category on our consolidated
statements of cash flows as the
cash flows related to the hedged item.
Foreign currency forward contracts related to our euro-denominated
foreign operations are designated as net
investment hedges.
For derivatives that are designated and qualify as net investment
hedges, the changes in the fair
value of the derivative is recorded in the foreign currency translation
gain (loss) component of Accumulated other
comprehensive income in stockholders’ equity until the net investment
is sold or substantially liquidated.
Our foreign currency forward agreements related to foreign currency
balance sheet exposure provide economic
hedges but are not designated as hedges for accounting purposes.
For agreements not designated as hedges, changes in the value of the derivative,
along with the transaction gain or
loss on the hedged item, are recorded in earnings.
Total return swaps are entered into for the purpose of economically hedging our unfunded non-qualified
supplemental retirement plan (“SERP”) and our deferred compensation
plan (“DCP”).
This swap will offset
changes in our SERP and DCP liabilities. This swap is expected
to be renewed on an annual basis.
Acquisitions
We account for business acquisitions and combinations under the acquisition method of accounting, where the net
assets of businesses purchased are recorded at their fair value at
the acquisition date and our consolidated financial
statements include their results of operations from that date.
Any excess of acquisition consideration over the fair
value of identifiable net assets acquired is recorded as goodwill.
The major classes of assets and liabilities that we
generally allocate purchase price to, excluding goodwill, include identifiable
intangible assets (i.e., trademarks and
trade names, customer relationships and lists, non-compete agreements and
product development), property plant
and equipment, deferred taxes and other current and long-term assets and
liabilities.
The estimated fair value ofnet within
identifiable intangible assets is based on critical estimates, judgments and assumptions
derived from: analysis of
market conditions; discount rates; discounted cash flows; customer
retention rates; and estimated useful lives.
Some prior owners of such acquired subsidiaries are eligible to receive additional
purchase price cash consideration
if certain financial targets are met.
While we use our best estimates and assumptions to accurately value
those
assets acquired and liabilities assumed at the acquisition date as well
as contingent consideration, where applicable,
our estimates are inherently uncertain and subject to refinement.
As a result, during the measurement period we
may record adjustments to the assets acquired and liabilities assumed with
the corresponding offset to goodwill
within our consolidated balance sheets.
 
At the end of the measurement periodFor software to be sold, leased, or final determinationmarketed to external users, we capitalize
software development costs when technological feasibility is reached and
 
of the values
ofinclude such assets acquired or liabilities assumed, whichever comes first, any subsequent
adjustments are recognized in
our consolidated statements of operations.
For the years
ended December 26, 2020, December 28, 2019costs within investments and
December 29, 2018, there were no material adjustments recorded in our consolidated
statement of income relating
to changes in subsequent adjustments or estimated contingent purchase price
liabilities.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in thousands, except per share data)
83
Redeemable Noncontrolling Interests
Some minority stockholders in certain of our subsidiaries have the right,
at certain times, to require us to acquire
their ownership interest in those entities at fair value.
Their interests in these subsidiaries are classified outside
permanent equity onother within our consolidated balance sheets and are carried
at the estimated redemption amounts.
The
redemption amounts have been estimated based on expected future earnings
and cash flow and, if such earnings and
cash flow are not achieved, the value of the redeemable noncontrolling
interests might be impacted.
Changes in the
estimated redemption amounts of the noncontrolling interests subject
to put options are reflected at each reporting
period with a corresponding adjustment to Additional paid-in capital.
Future reductions in the carrying amounts are
subject to a “floor” amount that is equal to the fair value of the redeemable
noncontrolling interests at the time they
were originally recorded.
The recorded value of the redeemable noncontrolling interests cannot
go below the floor
level.
These adjustments do not impact the calculation of earnings
per share.
Noncontrolling Interests
Noncontrolling interests represent our less than 50% ownership interest
in an acquired subsidiary.
Our net income
is reduced by the portion of the subsidiaries net income that is attributable
to noncontrolling interests.
Goodwill
Goodwill is not amortized, but is subject to impairment analysis annually or
more frequently if there is a triggering
event or if an event occurs or circumstances change that would
more likely than not reduce the fair value of a
reporting unit below its carrying value.
Such impairment analyses for goodwill requires a comparison of
the fair
value to the carrying value of reporting units.
We regard our reporting units to be our operating segments: global
dental; global medical;
and technology and value-added services.
Goodwill was allocated to such reporting units,
for the purposes of preparing our impairment analyses, based on a specific
identification basis.
On December 29, 2019 we adopted Account Standards Update (“ASU”)
2017-04 Intangibles-Goodwill and Other
(Topic 350): Simplifying the Test
for Goodwill Impairment, which eliminated step two from the goodwill
impairment test, thereby eliminating the requirement to calculate the
implied fair value of a reporting unit.
We
perform our annual goodwill impairment test by comparing the fair value of
our reporting units to the carrying
value of those units.
Goodwill as of December 26, 2019 and December 29, 2018
were tested under the prior
standard.
For the year ended December 26, 2020 we tested goodwill for impairment,
on the first day of the fourth quarter,
using a quantitative analysis comparing the carrying value of our reporting
units, including goodwill, to the
estimated fair value of our reporting units using a discounted cash flow
methodology. If the fair value of a reporting
unit exceeds its carrying amount, goodwill of the reporting unit is considered
not impaired.
Conversely,
impairment loss would be equivalent to the excess of a reporting unit’s carrying value over its fair value limited
to
the total amount of goodwill allocated to that reporting unit.
For the years ended December 26, 2019 and December 29, 2018 we tested
goodwill for impairment on the first day
of the fourth quarter, using a quantitative analysis which consisted of a two-step approach.
The first step of our
quantitative analysis consisted of a comparison of the carrying value of
our reporting units, including goodwill, to
the estimated fair value of our reporting units using a discounted cash
flow methodology. If step one resulted in the
carrying value of the reporting unit exceeding the fair value of such reporting
unit, we would have then proceeded
to step two which would have required us to calculate the amount of impairment
loss, if any, that we would have
recorded for such reporting unit.
The calculation of the impairment loss in step two would have been
equivalent to
the reporting unit’s carrying value of goodwill less the implied fair value of such goodwill.
Our use of a discounted cash flow methodology includes estimates of future
revenue based upon budget projections
and growth rates which take into account estimated inflation rates.
We also develop estimates for future levels of
sheets.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in thousands, except per share data)
84
gross and operating profits and projected capital expenditures.
Our methodology also includes the use of estimated
discount rates based upon industry and competitor analysis as well as
other factors. The estimates that we use in our
discounted cash flow methodology involve many assumptions by
management that are based upon future growth
projections.
Some factors we consider important that could trigger an interim
impairment review include:
significant underperformance relative to expected historical or projected
future operating results; significant
changes in the manner of our use of acquired assets or the strategy for
our overall business (e.g., decision to divest a
business); or significant negative industry or economic trends.
If we determine through the impairment review process that goodwill
is impaired, we record an impairment charge
in our consolidated statements of income.
For the years ended December 28, 2019 and December 29, 2018,
the
results of our goodwill impairment analysis did
0
t result in any impairments.
Long-Lived Assets
Long-lived assets, other than goodwill and other definite-lived intangibles,
are evaluated for impairment whenever
events or changes in circumstances indicate that the carrying amount
of the assets may not be recoverable through
the estimated undiscounted future cash flows to be derived from such
assets.
Definite-lived intangible assets primarily consist of non-compete agreements,
trademarks, trade names, customer
lists, customer relationships and intellectual property.
For long-lived assets used in operations, impairment losses
are only recorded if the asset’s carrying amount is not recoverable through its undiscounted, probability-weighted
future cash flows.
We measure the impairment loss based on the difference between the carrying amount and the
estimated fair value.
When an impairment exists, the related assets are written down to fair value.
During the year ended December 26, 2020, we recorded total impairment
charges on intangible assets of
approximately $
20.3
million, nearly all of which was recorded in our technology and
value-added services segment.
Cost of Sales
The primary components of cost of sales include the cost of the product
(net of purchase discounts, supplier
chargebacks and rebates) and inbound and outbound freight charges.
Costs related to purchasing, receiving,
inspections, warehousing, internal inventory transfers and other costs of
our distribution network are included in
selling, general and administrative expenses along with other operating
costs.
As a result of different practices of categorizing costs associated with distribution networks
throughout our
industry, our gross margins may not necessarily be comparable to other distribution companies.
Total distribution
network costs were $
71.7
million, $
72.3
million and $
69.6
million for the years ended December 26, 2020,
December 28, 2019 and December 29, 2018.
Comprehensive Income
Comprehensive income includes certain gains and losses that, under accounting
principles generally accepted in the
United States, are excluded from net income as such amounts are recorded
directly as an adjustment to
stockholders’ equity.
Our comprehensive income is primarily comprised of net income,
foreign currency
translation gain (loss), unrealized gain (loss) from foreign currency
hedging activities, unrealized investment gain
(loss) and pension adjustment gain (loss).
Leases
On December 30, 2018, we adopted ASC Topic 842, Leases, using a modified retrospective approach, whereby
we continue to apply existing lease guidance during the comparative
periods and apply the new lease
requirements through a cumulative-effect adjustment in the period of adoption. We elected the package of
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in thousands, except per share data)
85
practical expedients permitted under the transition guidance within
the new standard, which, among other things,
allowed us to carry forward the historical lease classification. Information
related to leases as of December 28,
2019 is presented under Topic 842, while prior period amounts are not adjusted and continue to be reported under
legacy guidance in ASC Topic 840, Leases.
The most significant impact was the recognition of ROU assets and lease liabilities
for operating leases, while our
accounting for finance leases remained substantially unchanged. Adoption
of the new standard resulted in the
recording of additional net operating lease assets of $
259.9
million and operating lease liabilities of $
267.3
million,
and a decrease of $
1.1
million and $
8.5
million in prepaid rent and deferred rent liabilities, respectively. The
standard did not materially impact our consolidated net income and had
no impact on cash flows.
 
We
We determine if an arrangement contains a lease at inception.
 
An arrangement contains a lease if it implicitly or
explicitly identifies an asset to be used and conveys the right to control
 
the use of the identified asset in exchange
for consideration.
 
As a lessee, we include operating leases in Operatingoperating lease right-of-use
 
(“ROU”) assets,
Operatingoperating lease liabilities, and Non-currentnon-current operating lease liabilities in our
 
consolidated balance sheet.sheets.
 
Finance
leases are included in Propertyproperty and equipment, Currentcurrent maturities of
 
long-term debt, and Long-termlong-term debt in our
consolidated balance sheets.
 
sheet.
ROU assets represent our right to use an underlying asset for the lease
 
term and lease liabilities represent our
obligation to make lease payments arising from the lease.
 
Operating lease ROU assets and liabilities are recognized
upon commencement of the lease based on the present value of the lease payments
 
over the lease term.
 
As most of
our leases do not provide an implicit interest rate, we generally use our incremental
 
borrowing rate based on the
estimated rate of interest for fully collateralized and fully amortizing borrowings
 
over a similar term of the lease
payments at commencement date to determine the present value of
 
lease payments.
 
When readily determinable, we
use the implicit rate.
 
Our lease terms may include options to extend or terminate the lease when it is reasonably
certain that we will exercise that option.
 
Lease expense for lease payments is recognized on a straight-line
 
basis
over the lease term.
 
Expenses associated with operating leases and finance leases
 
are included in “Selling,selling, general
and administrative”administrative and “Interest expense”,interest expense, respectively within our Consolidatedconsolidated
 
Statementstatement of Income.income.
 
Short-term
Leases
leases with a lease term of 12 months or less are not capitalized.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
76
We
have lease agreements with lease and non-lease components, which are
generally accounted for as a single
lease component, except non-lease components for leases of vehicles, which
 
are accounted for separately.
 
When a
vehicle lease contains both lease and non-lease components, we allocate the
 
the transaction price based on the relative
standalone selling price.
Business Acquisitions
We account for business acquisitions under the acquisition method of accounting, under which
 
the net assets of
acquired businesses are recorded at their fair value at the acquisition
date and our consolidated financial statements
include the acquired businesses’ results of operations from that date.
Some prior owners of acquired subsidiaries are eligible to receive additional
purchase price cash consideration, or
we may be entitled to recoup a portion of purchase price cash consideration
if certain financial targets are met.
We
have accrued liabilities for the estimated fair value of additional purchase
price consideration at the time of the
acquisition, using the income approach, including a probability-weighted
discounted cash flow method or an option
pricing method, where applicable.
Any adjustments to these accrual amounts are recorded
in selling, general and
administrative within our consolidated statements of income.
While we use our best estimates and assumptions to accurately value
assets acquired and liabilities assumed at the
acquisition date, our estimates are inherently uncertain and subject
to refinement.
As a result, within
12 months
following the date of acquisition, or the measurement period, we
may record adjustments to the assets acquired and
liabilities assumed with the corresponding offset to goodwill within our consolidated balance
sheets.
At the end of
the measurement period or final determination of the values of such assets
acquired or liabilities assumed,
whichever comes first, any subsequent adjustments are recognized
in our consolidated statements of operations.
Goodwill
Any excess of acquisition consideration over the fair value of identifiable
net assets acquired is recorded as
goodwill.
Goodwill is an asset representing the future economic benefits
arising from other assets acquired in a
business combination that are not individually identified and separately
recognized, such as future customers and
technology, as well as the assembled workforce.
Goodwill represents, for acquired business, the excess of the purchase price
over the estimated fair value of the net
assets acquired, including the amount assigned to identifiable intangible
assets.
Goodwill is subject to impairment
analysis annually or more frequently if needed.
Such impairment analyses for goodwill requires a comparison
of
the fair value to the carrying value of reporting units.
We regard our reporting units to be our operating segments:
global dental; global medical; and technology and value-added services.
Goodwill was allocated to such reporting
units, for the purposes of preparing our impairment analyses, based on
a specific identification basis.
For the years ended December 30, 2023 and December 31, 2022, we tested goodwill
for impairment, on the first
day of the fourth quarter, using a quantitative analysis comparing the carrying value of our reporting
units,
including goodwill, to their estimated fair values using a discounted
cash flow methodology.
When the estimated
fair value of a reporting unit exceeds its carrying amount, goodwill of the
reporting unit is considered not
impaired.
Conversely, when a reporting unit’s carrying value exceeds its fair value, an impairment charge against
goodwill, limited to the total amount of goodwill allocated to that
reporting unit, is recognized.
Application of the goodwill impairment test requires judgment, including
the identification of reporting units,
assignment of assets and liabilities that are considered shared services
to the reporting units, and ultimately the
determination of the fair value of each reporting unit.
The fair value of each reporting unit is calculated by
applying the discounted cash flow methodology and confirming with
a market approach.
There are inherent
uncertainties related to fair value models, the inputs and our judgments
in applying them to this analysis.
The most
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
77
significant inputs include estimation of future cash flows based on budget
expectations, and determination of
comparable companies to develop a weighted average cost of capital for each
reporting unit.
For the year ended December 30, 2023 and December 25, 2021, the results of
our goodwill impairment analysis did
no
t result in any impairments.
For the year ended December 31, 2022 we recorded a $
20
million impairment of
goodwill relating to the disposal of an unprofitable business whose
estimated fair value was lower than its carrying
value.
The disposal of this business is part of our restructuring initiative
as more fully discussed in
Intangible Assets
In connection with our business acquisitions, the major classes of
assets and liabilities to which we generally
allocate acquisition consideration to, excluding goodwill, include
identifiable intangible assets (i.e., customer
relationships and lists, trademarks and trade names, product development
and non-compete agreements), inventory
and accounts receivable.
The estimated fair value of identifiable intangible assets
is based on critical judgments
and assumptions derived from analysis of market conditions, including
discount rates, projected revenue growth
rates (which are based on historical trends and assessment of financial projections),
estimated customer attrition and
projected cash flows.
We have calculated the value of these intangible assets using the multi-period excess
earnings method, the relief-from-royalty method, and the with and without
method, where applicable.
These
assumptions are forward-looking and could be affected by future economic and
market conditions.
Intangible assets, other than goodwill, are evaluated for impairment whenever
events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable
through the undiscounted future cash flows
expected to be derived from such asset or asset group.
Definite-lived intangible assets primarily consist of non-compete agreements,
trademarks, trade names, customer
lists, customer relationships and product development.
For long-lived assets used in operations, impairment losses
are only recorded if the asset or asset groups carrying amount is not recoverable
through its undiscounted future
cash flows.
We measure the impairment loss based on the difference between the carrying amount and the
estimated fair value.
When an impairment exists, the related assets are written down to fair value.
During the years ended December 30, 2023, December 31, 2022
and December 25, 2021, we recorded total
impairment charges, within the selling, general and administrative line of our consolidated statements
of income, on
intangible assets of $
7
million, $
34
million and $
1
million, respectively, as more fully discussed in
Income Taxes
We account for income taxes under an asset and liability approach that requires the recognition of deferred income
tax assets and liabilities for the expected future tax consequences of events
that have been recognized in our
financial statements or tax returns.
In estimating future tax consequences, we generally consider all expected
future
events other than expected enactments of changes in tax laws or rates.
The effect on deferred income tax assets and
liabilities of a change in tax rates is recognized as income or expense in
the period that includes the enactment date.
We file a consolidated U.S. federal income tax return with our 80% or greater owned U.S. subsidiaries
.
Redeemable Noncontrolling Interests
Some minority stockholders in certain of our consolidated subsidiaries have
the right, at certain times, to require us
to acquire their ownership interest in those entities at fair value.
Their interests in these subsidiaries are classified
outside permanent equity on our consolidated balance sheets and are
carried at the estimated redemption amounts.
The redemption amounts have been estimated based on expected future
earnings and cash flows and, if such
earnings and cash flows are not achieved, the value of the redeemable noncontrolling
interests might be impacted.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
78
Changes in the estimated redemption amounts of the noncontrolling
interests subject to put options are reflected at
each reporting period with a corresponding adjustment to Additional paid-in
capital.
Future reductions in the
carrying amounts are subject to a “floor” amount that is equal to the
fair value of the redeemable noncontrolling
interests at the time they were originally recorded.
The recorded value of the redeemable noncontrolling interests
cannot go below the floor level.
Adjustments to the carrying amount of noncontrolling interests
to
reflect a fair value redemption feature do not impact the calculation of
earnings per share.
Our net income is
reduced by the portion of the subsidiaries’ net income that is attributable
to redeemable noncontrolling interests.
Noncontrolling Interests
Noncontrolling interest represents the ownership interests of certain
minority owners of our consolidated
subsidiaries.
Our net income is reduced by the portion of the subsidiaries’
net income that is attributable to
noncontrolling interests.
Comprehensive Income
Comprehensive income includes certain gains and losses that, under accounting
principles generally accepted in the
United States, are excluded from net income as such amounts are recorded
directly as an adjustment to
stockholders’ equity.
Our comprehensive income is primarily comprised of net income,
foreign currency
translation gain (loss), unrealized gain (loss) from hedging activities
and unrealized pension adjustment gain.
Risk Management and Derivative Financial Instruments
We use derivative instruments to minimize our exposure to fluctuations in foreign currency exchange rates, interest
rates, and our unfunded non-qualified supplemental retirement plan (“SERP”)
and our deferred compensation plan
(“DCP”).
Our objective is to manage the impact that foreign currency
exchange rate fluctuations could have on
recognized asset and liability fair values, earnings and cash flows, as well
as our net investments in foreign
subsidiaries, the interest rate risk on variable rate debt, and the returns on
our SERP and DCP.
Our risk
management policy requires that derivative contracts used as hedges be
effective at reducing the risks associated
with the exposure being hedged and be designated hedges at inception
of the contracts.
We do not enter into
derivative instruments for speculative purposes.
Our derivative instruments primarily include foreign currency
forward contracts, total return swaps, and interest rate swaps.
Foreign currency forward agreements related to forecasted inventory
purchase commitments with foreign suppliers,
foreign currency swaps related to foreign currency denominated debt, and
interest rate swaps related to variable rate
debt are designated as cash flow hedges.
For derivatives that are designated and qualify as cash flow hedges,
the
changes in the fair value of the derivatives are recorded as a
component of Accumulated other comprehensive
income in stockholders’ equity and subsequently reclassified into
earnings in the period(s) during which the hedged
transactions affect earnings.
We classify the cash flows related to our hedging activities in the same category in our
consolidated statements of cash flows as the cash flows related
to the hedged item.
Foreign currency forward contracts related to our euro-denominated
foreign operations are designated as net
investment hedges.
For derivatives that are designated and qualify as net investment
hedges, changes in the fair
value of the derivatives are recorded in the foreign currency translation gain
(loss) component of Accumulated
other comprehensive income in stockholders’ equity until the net
investment is sold or substantially liquidated.
Interest swap agreements are entered into for the purpose of hedging
the cash flow of our variable interest rate term
loan.
Our foreign currency forward agreements related to foreign currency
balance sheet exposure provide economic
hedges but are not designated as hedges for accounting purposes.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
79
For agreements not designated as hedges, changes in the value of the derivative,
along with the transaction gain or
loss on the hedged item, are recorded in other, net, within our consolidated statements of income.
Total return swaps are entered into for the purpose of economically hedging our SERP and DCP.
These swaps are
expected to be renewed on an annual basis.
Changes in the fair values of these total return swaps are recorded in
selling, general, and administrative expenses within our consolidated
statements of income and offset recognized
changes in the fair values of our SERP and DCP liabilities.
Foreign Currency Translation
and Transactions
The financial position and results of operations of our foreign subsidiaries
are determined using local currencies as
the functional currencies.
Assets and liabilities of foreign subsidiaries are translated at the exchange
rate in effect at
each year-end.
Income statement accounts are translated at the average rate
of exchange prevailing during the year.
Translation adjustments arising from the use of differing exchange rates from period to period are included
in
Accumulated other comprehensive income in stockholders’ equity.
Gains and losses resulting from foreign
currency transactions are included in earnings.
Accounting Pronouncements Adopted
 
OnDuring the year ended December 29, 2019,30, 2023, we adopted ASU No. 2017-04, “Intangibles-GoodwillASC Topic 848,
“Reference Rate Reform” (Topic 848):
Facilitation of the Effects of Reference Rate Reform on Financial Reporting”
 
which provides optional expedients
and Other” (Topic 350) (“ASU
2017-04”).exceptions for applying GAAP to contracts, hedging relationships and
 
ASU 2017-04 eliminates step two fromother transactions affected by the goodwill impairment
discontinuation of the London Interbank Offered Rate or by another reference rate
 
test, thereby eliminating theexpected to be discontinued
requirement to calculate the implied fair valuebecause of a reporting unit.reference rate reform.
 
ASU 2017-04 requires us to perform our annual
goodwill impairment test by comparing the fair valueThe adoption of our reporting
units to the carrying value of those units.
If
the carrying value exceeds the fair value, we will be required to recognize
an impairment charge; however, the
impairment charge should not exceed the amount of goodwill allocated to such reporting
unit.
Our adoption of
ASU 2017-04Topic 848 did not have a material impact on our consolidated
financial statements.
On December 29, 2019,26, 2021 we adopted Accounting Standards Update
(“ASU”) No. 2021 – 08,
“Accounting for
Contract Assets and Contract Liabilities from Contracts with Customers” (Subtopic 805).
ASU 2021 – 08 requires
an acquirer to recognize and measure contract assets and contract liabilities acquired
in a business combination in
accordance with ASU No. 2014 - 09, “Revenue from Contracts with Customers”
(Topic 606).
At the acquisition
date, an acquirer should account for the related revenue contracts in accordance
with Topic 606 as if it had
originated the contracts.
To achieve this, an acquirer may assess how the acquiree applied Topic 606 to determine
what to record for the acquired revenue contracts.
Generally, this should result in an acquirer recognizing and
measuring the acquired contract assets and contract liabilities consistent with how
they were recognized and
measured in the acquiree’s financial statements.
Our adoption of ASU 2021 - 08 did not have a material impact on
our consolidated financial statements.
On December 27, 2020 we adopted ASU No. 2016-13, "Financial Instruments-Credit
Losses (Topic 326):2019-12,
Measurement of Credit Losses on Financial Instruments" which requires the
measurement and recognition of
expected credit losses for financial assets held at amortized cost.
We adopted Topic
326 using the modified-
retrospective method and recorded an immaterial cumulative-effect adjustment
to the opening balance of retained
earnings.
Based upon the level and makeup of our financial asset portfolio,
including accounts receivable, past loan
loss activity and current known activity regarding our outstanding loans,
the adoption of this ASU resulted in a
decrease of $
0.4
million to retained earnings.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in thousands, except per share data)
86
Recently Issued Accounting Standards
In December 2019, the FASB issued ASU No. 2019-12, “Income“Income Taxes” (Topic
 
740): Simplifying the Accounting
for Income Taxes (“
(“ASU 2019-12”).
 
ASU 2019-12 will simplifysimplifies the accounting for income taxes by
 
removing certain
certain exceptions to the general principles in Topic 740.
 
The amendments also improve consistent application of and
and simplify U.S. GAAP for other areas of Topic 740 by clarifying and amending existing guidance.
 
ASU 2019-12
is effective for fiscal years beginning after December 15, 2020.
We do not expect that the requirementsOur adoption of this
ASU will have a material impact on our consolidated financial statements.
In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2020-06, “Debt—Debt with
Conversion and Other Options” (Subtopic 470-20) and “Derivatives and Hedging—
in Entity’s Own Equity”
(Subtopic 815-40): Accounting for Convertible Instruments and Contracts
in an Entity’s Own Equity (“ASU 2020-
06”).
ASU 2020-06 simplifies the accounting for convertible instruments.
In addition to eliminating certain
accounting models, this ASU includes improvements to the disclosures
for convertible instruments and earnings-
per-share (EPS) guidance and amends the guidance for the derivatives scope exception
for contracts in an entity’s
own equity.
ASU 2020-06 is effective for fiscal years beginning after December
15, 2021.
We do2019-12 did not expect that
the requirements of this ASU will have a material impact on our consolidated
 
financial statements.
Recently Issued Accounting Standards
In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-09, “
Income Taxes
(Topic 740): Improvements to
Income Tax Disclosures
,” which requires public business entities to disclose
additional information in specified categories with respect to
the reconciliation of the effective tax rate to the
statutory rate for federal, state, and foreign income taxes.
It also requires greater detail about individual reconciling
items in the rate reconciliation to the extent the impact of those items
exceeds a specified threshold.
In addition to
new disclosures associated with the rate reconciliation, the ASU requires
information pertaining to taxes paid (net
of refunds received) to be disaggregated for federal, state, and foreign
taxes and further disaggregated for specific
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
 
FINANCIAL STATEMENTS
(in thousands,millions, except share and per share data)
80
87
jurisdictions to the extent the related amounts exceed a quantitative threshold.
The ASU also describes items that
need to be disaggregated based on their nature, which is determined by
reference to the item’s fundamental or
essential characteristics, such as the transaction or event that triggered
the establishment of the reconciling item and
the activity with which the reconciling item is associated.
The ASU eliminates the historic requirement that entities
disclose information concerning unrecognized tax benefits having a reasonable
possibility of significantly
increasing or decreasing in the 12 months following the reporting date.
This ASU is effective for annual periods
beginning after December 15, 2024.
Early adoption is permitted for annual financial statements
that have not yet
been issued or made available for issuance.
This ASU should be applied on a prospective basis; however,
retrospective application is permitted.
We are currently evaluating the impact that ASU 2023 – 09 will have on our
consolidated financial statements.
In November 2023, the FASB issued ASU 2023-07, “
Segment Reporting (Topic 280): Improvements to Reportable
Segments
,” which aims to improve financial reporting by requiring disclosure
of incremental segment information
on an annual and interim basis for all public entities to enable investors to
develop more decision-useful financial
analyses.
Currently, Topic
280 requires that a public entity disclose certain information about its
reportable
segments.
For example, a public entity is required to report a measure of
segment profit or loss that the CODM
uses to assess segment performance and make decisions about allocating
resources.
Topic 280 also requires other
specified segment items and amounts, such as depreciation, amortization,
and depletion expense, to be disclosed
under certain circumstances.
The amendments in this ASU do not change or remove those disclosure
requirements
and do not change how a public entity identifies its operating segments,
aggregates those operating segments, or
applies the quantitative thresholds to determine its reportable segments.
This ASU is effective for fiscal years
beginning after December 15, 2023, and interim periods within fiscal years
beginning after December 15, 2024.
Early adoption is permitted.
We do not expect that the requirements of ASU 2023 – 07 will have a material impact
on our consolidated financial statements.
Note 2 – Discontinued OperationsCybersecurity Incident
In October 2023 Henry Schein experienced a cybersecurity incident that
 
primarily affected the operations of our
Animal Health Spin-off
North American and European dental and medical distribution businesses.
 
Henry Schein One, our practice
On February 7, 2019 (the “Distribution Date”), we completed the separationmanagement software, revenue cycle management and patient relationship
 
(the “Separation”)management solutions business, was not
affected, and subsequent
merger (“Merger”) of our animal health business (the “Henry Schein Animal Health Business”) with Directmanufacturing businesses were mostly unaffected.
 
VetWe reported the incident to law enforcement
Marketing, Inc. (d/b/a Vets First Choice, “Vetsauthorities, restored affected systems and applications, our distribution operations
 
First Choice”).resumed and we reactivated our
ecommerce platform. Subsequently, on or about November 8, 2023, we determined that the threat actor obtained
personal and sensitive information maintained on our systems belonging
 
This was accomplished byto certain third parties and since that date
we have notified affected and potentially affected parties as appropriate.
The scope of personal and sensitive data
impacted is still under investigation.
On November 22, 2023, we experienced a series of transactions
among us, Vets
First Choice, Covetrus, Inc. (f/k/a HS Spinco, Inc. “Covetrus”), a
wholly owned subsidiary of ours
prior to the Distribution Date, and HS Merger Sub, Inc., a wholly owned subsidiarydisruption
 
of Covetrus (“Mergerour ecommerce
Sub”).platform and related applications, which has since been remediated.
 
In connection withThe incident adversely impacted our financial
results for the Separation,fourth quarter and full year 2023.
During the year ended December 30, 2023, we contributed, assigned
and transferred to Covetrus certain applicable
assets, liabilities and capital stock or other ownership interests relating
to the Henry Schein Animal Health
Business.
On the Distribution Date, we received a tax-free distribution ofincurred $
1,12011
 
million from Covetrus pursuantof expenses directly related to the
cybersecurity incident, mostly consisting of professional fees.
We maintain cybersecurity insurance, subject to
certain debt financing incurred by Covetrus.retentions and policy limitations.
 
On the Distribution Date and priorWith respect to the Animal Health Spin-off,
Covetrus issued shares of Covetrus common stock to certain institutional
accredited investors (the “Share Sale
Investors”) forOctober 2023 cybersecurity incident, we have a $
361.160
million insurance policy, following a $
5
 
million (the “Share Sale”).
retention.
The proceeds of the Share Sale were paid to Covetrus and
distributed to us.
Subsequent to the Share Sale, we distributed, on a pro rata basis,
all of the shares of the common
stock of Covetrus held by us to our stockholders of record as of the close of
business on January 17, 2019 (the
“Animal Health Spin-off”).
After the Share Sale and Animal Health Spin-off, Merger Sub consummated the
Merger whereby it merged with and into Vets
First Choice, with Vets First Choice surviving the Merger as a
wholly owned subsidiary of Covetrus.
Immediately following the consummation of the Merger, on a fully diluted
basis, (i) approximately
63
% of the shares of Covetrus common stock were (a) owned by our stockholders
and the
Share Sale Investors, and (b) held by certain employees of the Henry Schein
Animal Health Business (in the form
of certain equity awards), and (ii) approximately
37
% of the shares of Covetrus common stock were (a) owned by
stockholders of Vets
First Choice immediately prior to the Merger, and (b) held by certain employees of Vets First
Choice (in the form of certain equity awards).
After the Separation and the Merger, we no longer beneficially
owned any shares of Covetrus common stock and, following the Distribution
Date, will not consolidate the
financial results of Covetrus for the purpose of our financial reporting.
Following the Separation and the Merger,
Covetrus was an independent, publicly traded company on the Nasdaq Global Select
Market.
In connection with the completion of the Animal Health Spin-off, we entered into
a transition services agreement,
which ended in December 2020, with Covetrus under which we agreed to provide
certain transition services for up
to twenty-four months in areas such as information technology, finance and accounting,
human resources, supply
chain, and real estate and facility services.
As a result of the Separation, the financial position and results of operations
of the Henry Schein Animal Health
Business are presented as discontinued operations and have been excluded
from continuing operations and segment
results for all periods presented. The accompanying Notes to the Consolidated
Financial Statements have been
revised to reflect the effect of the Separation and all prior year balances have been
revised accordingly to reflect
continuing operations only. The historical statements of Comprehensive Income
(Loss) and Shareholders' Equity
have not been revised to reflect the Separation and instead reflect the Separation
as an adjustment to the balances at
December 26, 2020.
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
 
FINANCIAL STATEMENTS
(in thousands,millions, except share and per share data)
8881
Note 3 – Net Sales from Contracts with Customers
Summarized financial information for our discontinued operationsNet sales are recognized in accordance with policies disclosed
 
is as follows:
in
Disaggregation of Net sales
YearsThe following table disaggregates our net sales by reportable and operating segment
 
Ended
December 26,
December 28,
December 29,
2020
2019
2018
Net sales
$
0
$
319,522
$
3,784,392
Cost of goods sold
0
260,097
3,100,055
Gross profit
0
59,425
684,337
Selling, general and administrative
2,347
68,919
531,905
Operating income (loss)
(2,347)
(9,494)
152,432
Income tax expense (benefit)
(3,333)
(2,181)
48,060
Income (loss) from discontinued operations
986
(6,323)
111,685
Net (income) loss attributable to noncontrolling interests
0
366
(6,521)
Net income (loss) from discontinued operations
attributable to Henry Schein, Inc.
986
(5,957)
105,164
geographic area:
The operating loss from discontinued operations for the year ended
December 26, 2020 was primarily attributable
to costs directly related to the Animal Health Spin-off.
See
for additional
information.
The net income from discontinued operations for the year ended December
26, 2020 was primarily attributable to a
reduction in a liability for tax indemnification and a tax refund received
during 2020 by a holding company
previously part of our Animal Health legal structure and other
favorable tax resolutions.
The financial information above, for the year ended December
28, 2019, represents activity of the discontinued
operations during year-to-date through the Distribution Date.
The loss from discontinued operations for the year
ended December 28, 2019 was primarily attributable to the inclusion of
the transaction costs directly related to the
Animal Health Spin-off.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in thousands, except per share data)
89
The following are the amounts of assets and liabilities that were
transferred to Covetrus as of February 7, 2019.
February 7,
2019
Cash and cash equivalents
$
6,815
Accounts receivable, net
432,812
Inventories, net
536,637
Prepaid expenses and other
120,546
Total current
assets of discontinued operations
1,096,810
Property and equipment, net
69,790
Operating lease right-of-use asset, net
57,012
Goodwill
742,931
Other intangibles, net
205,793
Investments and other
120,518
Total long-term assets of
discontinued operations
1,196,044
Total assets of discontinued
operations
$
2,292,854
Accounts payable
$
316,162
Current maturities of long-term debt
657
Operating lease liabilities
18,951
Accrued expenses:
Payroll and related
36,847
Taxes
24,060
Other
80,400
Total current
liabilities of discontinued operations
477,077
Long-term debt
1,176,105
Deferred income taxes
17,019
Operating lease liabilities
38,668
Other liabilities
29,209
Total long-term liabilities
of discontinued operations
1,261,001
Total liabilities of discontinued
operations
$
1,738,078
Redeemable noncontrolling interests
$
28,270
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Year
Ended
December 30, 2023
North America
International
Global
Net sales:
Health care distribution
Dental
$
4,500
$
3,039
$
7,539
Medical
3,897
97
3,994
Total health care distribution
8,397
3,136
11,533
Technology
and value-added services
705
101
806
Total net sales
$
9,102
$
3,237
$
12,339
Year
Ended
December 31, 2022
North America
International
Global
Net sales:
Health care distribution
Dental
$
4,628
$
2,845
$
7,473
Medical
4,375
76
4,451
Total health care distribution
9,003
2,921
11,924
Technology
and value-added services
633
90
723
Total net sales
$
9,636
$
3,011
$
12,647
Year
Ended
December 25, 2021
North America
International
Global
Net sales:
Health care distribution
Dental
$
4,506
$
3,038
$
7,544
Medical
4,107
103
4,210
Total health care distribution
8,613
3,141
11,754
Technology
and value-added services
560
87
647
Total net sales
$
9,173
$
3,228
-
$
12,401
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
 
FINANCIAL STATEMENTS
(in thousands,millions, except share and per share data)
9082
Note 34 – PropertySegment and Equipment, NetGeographic Data
We conduct our business through
two
 
Propertyreportable segments: (i) health care distribution and equipment, including related estimated useful lives, consisted(ii) technology
 
and
value-added services.
These segments offer different products and services to the same customer base.
Our global
dental businesses serve office-based dental practitioners, dental laboratories, schools, government
and other
institutions.
Our medical businesses serve physician offices, urgent care centers, ambulatory care sites,
emergency
medical technicians, dialysis centers, home health, federal and state governments
and large enterprises, such as
group practices and integrated delivery networks, among other providers
across a wide range of the following:specialties.
Our
dental and medical groups serve practitioners in
33
countries worldwide.
The health care distribution reportable segment aggregates our global dental
and medical operating segments.
This
segment distributes consumable products, dental specialty products, small
equipment, laboratory products, large
equipment, equipment repair services, branded and generic pharmaceuticals,
vaccines, surgical products, diagnostic
tests, infection-control products, personal protective equipment products (“PPE”)
and vitamins.
Our global technology and value-added services reportable segment provides
software, technology and other value-
added services to health care practitioners.
Our technology offerings include practice management software
systems for dental and medical practitioners.
Our value-added practice solutions include practice consultancy,
education, revenue cycle management and financial services on a non-recourse
basis, e-services, practice
technology, network and hardware services, as well as continuing education services for practitioners.
The following tables present information about our reportable and operating
segments:
December 26,
Years
Ended
December 28,30,
2020December 31,
2019December 25,
Land2023
2022
2021
Net sales:
Health care distribution
(1)
Dental
$
20,2977,539
$
18,030
Buildings and permanent improvements
145,160
121,823
Leasehold improvements
107,753
104,089
Machinery and warehouse equipment
142,437
124,640
Furniture, fixtures and other
108,041
99,083
Computer equipment and software
344,494
330,926
868,182
798,591
Less accumulated depreciation
(526,178)
(468,946)
Property and equipment, net
7,473
$
342,0047,544
Medical
3,994
4,451
4,210
Total health care distribution
11,533
11,924
11,754
Technology
and value-added services
(2)
806
723
647
Total
$
329,64512,339
Estimated Useful$
Lives (in years)12,647
Buildings and permanent improvements
$
4012,401
Machinery and warehouse equipment
5
-
10
Furniture, fixtures and other
3
-
10
Computer equipment and software
3
-
10
(1)
Property
Consists of consumable products, dental specialty products (including implant, orthodontic and endodontic products), small
equipment, related depreciation expenselaboratory products, large equipment, equipment repair services, branded and generic pharmaceuticals, vaccines, surgical
products, diagnostic tests, infection-control products, PPE products and vitamins.
(2)
Consists of practice management software and other value-added products, which are distributed primarily to health care providers,
practice consultancy, education, revenue cycle management and financial services on a non-recourse basis, e-services, continuing
education services for the years
practitioners, consulting and other services.
ended December 26, 2020, December 28, 2019
and December 29, 2018 was $
64.3
 
million, $
64.4
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
83
million and $
58.1
million.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Years
ended
December 30,
December 31,
December 25,
2023
2022
2021
Operating Income:
Health care distribution
$
470
$
619
$
727
Technology
and value-added services
145
128
125
Total
$
615
$
747
$
852
Income before taxes and equity in earnings of affiliates:
Health care distribution
$
396
$
592
$
706
Technology
and value-added services
146
129
125
Total
$
542
$
721
$
831
Depreciation and Amortization:
Health care distribution
$
184
$
160
$
157
Technology
and value-added services
64
52
53
Total
$
248
$
212
$
210
Interest Income:
Health care distribution
$
16
$
7
$
6
Technology
and value-added services
1
1
-
Total
$
17
$
8
$
6
Interest Expense:
Health care distribution
$
87
$
35
$
27
Technology
and value-added services
-
-
-
Total
$
87
$
35
$
27
Income Tax
Expense:
Health care distribution
$
90
$
141
$
168
Technology
and value-added services
30
29
30
Total
$
120
$
170
$
198
Equity in Earnings of Affiliates:
Health care distribution
$
14
$
14
$
19
Technology
and value-added services
-
1
1
Total
$
14
$
15
$
20
Purchases of Property and Equipment:
Health care distribution
$
139
$
86
$
74
Technology
and value-added services
8
10
5
Total
$
147
$
96
$
79
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
 
FINANCIAL STATEMENTS
(in thousands,millions, except share and per share data)
9184
As of
December 30,
December 31,
December 25,
2023
2022
2021
Total
Assets:
Health care distribution
$
9,083
$
7,287
$
7,157
Technology
and value-added services
1,490
1,320
1,324
Total
$
10,573
$
8,607
$
8,481
The following table presents information about our operations by geographic
area as of and for the years ended
December 30, 2023, December 31, 2022 and December 25, 2021.
Net sales by geographic area are based on the
respective locations of our subsidiaries.
No country, except for the United States, generated net sales greater than
10
% of consolidated net sales.
There were no material amounts of sales or transfers among geographic
areas and
there were no material amounts of export sales.
2023
2022
2021
Net Sales
Long-Lived
Assets
Net Sales
Long-Lived
Assets
Net Sales
Long-Lived
Assets
United States
$
8,631
$
3,434
$
9,190
$
2,891
$
8,722
$
2,981
Other
3,708
2,180
3,457
1,256
3,679
1,232
Consolidated total
$
12,339
$
5,614
$
12,647
$
4,147
$
12,401
$
4,213
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
85
Note 4 – Goodwill and Other Intangibles, Net
The changes in the carrying amount of goodwill for the years ended December
26, 2020 and December 28, 2019
were as follows:
Health Care
Distribution
Technology
and
Value-Added
Services
Total
Balance as of December 29, 2018
$
1,433,412
$
647,617
$
2,081,029
Adjustments to goodwill:
Acquisitions
50,276
338,352
388,628
Foreign currency translation
(6,969)
(193)
(7,162)
Balance as of December 28, 2019
1,476,719
985,776
2,462,495
Adjustments to goodwill:
Acquisitions
14,230
12,101
26,331
Foreign currency translation
9,888
5,678
15,566
Balance as of December 26, 2020
$
1,500,837
$
1,003,555
$
2,504,392
Other intangible assets consisted of the following:
December 26, 2020
December 28, 2019
Accumulated
Accumulated
Cost
Amortization
Net
Cost
Amortization
Net
Non-compete agreements
$
30,993
$
(11,480)
$
19,513
$
34,553
$
(9,327)
$
25,226
Trademarks / trade names - definite lived
95,382
(50,893)
44,489
99,314
(44,134)
55,180
Customer relationships and lists
652,605
(283,469)
369,136
715,630
(274,330)
441,300
Product Development
94,216
(54,451)
39,765
85,211
(42,326)
42,885
Other
14,188
(7,662)
6,526
26,237
(17,950)
8,287
Total
$
887,384
$
(407,955)
$
479,429
$
960,945
$
(388,067)
$
572,878
Non-compete agreements represent amounts paid primarily to key employees
and prior owners of acquired
businesses, as well as certain sales persons, in exchange for placing restrictions
on their ability to pose a
competitive risk to us.
Such amounts are amortized, on a straight-line basis over the
respective non-compete
period, which generally commences upon termination of employment
or separation from us.
The weighted-average
non-compete period for agreements currently being amortized was approximately
5.1
years as of December 26,
2020.
Trademarks, trade names, customer lists and customer relationships were established through
business acquisitions.
Definite-lived trademarks and trade names are amortized on a straight-line
basis over a weighted-average period of
approximately
8.1
years as of December 26, 2020.
Customer relationships and customer lists are definite-lived
intangible assets that are amortized on a straight-line basis over a weighted-average
period of approximately
10.0
years as of December 26, 2020.
Product development is a definite-lived intangible asset that is amortized
on a
straight-line basis over a weighted-average period of approximately
8.5
years as of December 26, 2020.
Amortization expense related to definite-lived intangible assets for the years ended
December 26, 2020, December
28, 2019 and December 29, 2018 was $
105.9
million, $
108.3
million and $
75.3
million.
During the year ended
December 26, 2020, we recorded total impairment charges on intangible assets of
approximately $
20.3
million.
The annual amortization expense expected to be recorded for existing
intangibles assets for the years 2021 through
2025 is $
99.3
million, $
85.5
million, $
78.0
million, $
54.8
million and $
43.2
million.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in thousands, except per share data)
92
Note 5 – InvestmentsBusiness Acquisitions and OtherDivestiture
 
InvestmentsOur acquisition strategy is focused on investments in companies that
add new customers and other consisted of the following:sales teams, increase
our geographic footprint (whether entering a new country, such as emerging markets, or building scale where we
have already invested in businesses), and finally, those that enable us to access new products and technologies
.
Acquisition of Shield Healthcare
On October 2, 2023 we acquired a
90
% voting equity interest in Shield Healthcare, Inc. (“Shield”), a supplier
of
homecare medical products delivered directly to patients in their homes.
Based in California, Shield expands our
existing medical business by delivering a diverse range of products,
including items such as incontinence, urology,
ostomy, enteral nutrition, advanced wound care, and diabetes supplies.
Additionally, Shield offers continuous
glucose monitoring devices directly to patients in their homes.
 
December 26,
December 28,
2020
2019
Investment in unconsolidated affiliatesThe following table aggregates
 
$
169,382
$
164,659
Non-current deferred foreign, state and local income taxesthe preliminary estimated fair value, as of the date of acquisition, of
 
consideration
42,594
23,625
Notes receivable
(1)
34,760
43,544
Capitalized costs for internally generated software for resale
47,650
42,445
Security deposits
1,752
534
Acquisition-related indemnification
49,401
38,464
Other long-termpaid and net assets
20,906
14,648
Total
$
366,445
$
327,919
(1)
Long-term notes receivable carry interest rates ranging from
1
.0% to
14
.0%
and are due acquired in varying installments through
September 30, 2027
.
the Shield acquisition:
Amortization expense related to other long-term assets for the years ended December
26, 2020, December 28, 2019
and December 29, 2018 was $
15.3
million, $
12.3
million and $
10.2
million.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2023
Acquisition consideration:
Cash
$
307
Deferred consideration
22
Redeemable noncontrolling interest
37
Total consideration
$
366
Identifiable assets acquired and liabilities assumed:
Current assets
$
41
Intangible assets
166
Other noncurrent assets
14
Current liabilities
(24)
Deferred income taxes
(41)
Other noncurrent liabilities
(7)
Total identifiable
net assets
149
Goodwill
217
Total net assets acquired
$
366
Goodwill is a result of expected synergies that are expected to originate from the
acquisition as well as the expected
growth potential of Shield.
The acquired goodwill is not deductible for tax purposes.
The following table summarizes the preliminary identifiable intangible assets
acquired as part of the acquisition of
Shield:
2023
Weighted Average
Useful
Lives (in years)
Customer relationships and lists
$
156
12
Trademarks / Tradenames
10
5
Total
$
166
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
 
FINANCIAL STATEMENTS
(in thousands,millions, except share and per share data)
93
Note 6 – Debt
Bank Credit Lines
Bank credit lines consisted of the following:
86
December 26,
December 28,
2020
2019
Revolving credit agreement
$
0
$
0
Other short-term bank credit lines
73,366
23,975
Total
$
73,366
$
23,975
The accounting for the acquisition of Shield has not been completed
 
Revolving Credit Agreement
On
April 18, 2017
, we entered into a $
750
million revolving credit agreement (the “Credit Agreement”), which
matures in April 2022.
The interest rate is based on the USD LIBOR
plus a spread based on our leverage ratio at
the end of each financial reporting quarter.
We expect the LIBOR rate to be discontinued at some point
during 2021, which will require an amendment to our debt agreements to
reflect a new reference rate. We do not
expect the discontinuation of LIBOR as a reference rate in our debt agreements
to have a material adverse effect on
our financial position or to materially affect our interest expense.
The Credit Agreement also requires, among other
things, that we maintain maximum leverage ratios. Additionally, the Credit Agreement contains customary
representations, warranties and affirmative covenants as well as customary negative
covenants, subject to
negotiated exceptions on liens, indebtedness, significant corporate changes
(including mergers), dispositions and
certain restrictive agreements.
As of December 26, 2020 and December 28, 2019, we had
0
borrowings on this
revolving credit facility.
As of December 26, 2020 and December 28, 2019, there
were $
9.5
million and $
9.6
million of letters of credit, respectively,
provided to third parties under the credit facility.
On April 17, 2020, we amended the Credit Agreement to, among other
things, (i) modify the financial covenant
from being based on total leverage ratio to net leverage ratio, (ii) adjust
the pricing grid to reflect the net leverage
ratio calculation, and (iii) increase the maximum maintenance leverage ratio
through March 31, 2021.
364-Day Credit Agreement
On
April 17, 2020
, we entered into a new $
700
million
364
-day credit agreement, with JPMorgan Chase Bank,
N.A. and U.S. Bank National Association as joint lead arrangers and joint
bookrunners.
This facility matures on
April 16, 2021
.
As of December 26, 2020, we had
0
borrowings under this credit facility.
We have the ability to
borrow up to an additional $
200
million, from the original facility amount of $
700
million, under this credit facility
on a revolving basis as needed, subject to the terms and conditions of
the credit agreement.
The interest rate for
borrowings under this facility will fluctuate based on our net leverage ratio. At December 26, 2020, the interest
rate on this facility was 2.50%. The proceeds from this facility can be used for working capital requirements and
general corporate purposes,several respects, including but not limited to permitted refinancing
finalizing valuation assessments of existing indebtednessaccounts receivable, inventory, accrued liabilities and income and non-income
based taxes.
To assist in the allocation of consideration,
we engaged valuation specialists to determine the fair
value of intangible and tangible assets acquired and liabilities assumed.
We
will finalize the amounts recognized as
the information necessary to complete the analysis is obtained.
We expect to finalize these amounts as soon as
possible but no later than one year from the acquisition date.
The pro forma financial information has not been
presented because the impact of the Shield acquisition during the year ended
December 30, 2023 was immaterial to
our consolidated financial statements.
Acquisition of S.I.N. Implant System
On July 5, 2023, we acquired a
100
% voting equity interest in S.I.N. Implant System (“S.I.N.”).
 
Under theBased in São
termsPaulo, S.I.N. manufactures an extensive line of this agreement, we are prohibited from repurchasing our common stockproducts to perform dental
 
until we report our financialimplant procedures and is focused on
results foradvancing the second quarterdevelopment of 2021.
value-priced dental implants.
 
Other Short-Term Credit
LinesS.I.N. recently expanded the distribution of its
As of December 26, 2020products into the United States and December 28, 2019, we had various other
international markets.
short-term bank credit lines available, of
which $
73.4
million and $
24.0
million, respectively, were outstanding.
At December 26, 2020 and December 28,
2019, borrowings under all of these credit lines had a weighted average
interest rate of
4.14
% and
3.45
%,
respectively.
The following table aggregates the preliminary estimated fair value, as of
 
the date of acquisition, of consideration
paid and net assets acquired in the S.I.N., including measurement period
adjustments recorded through December
30, 2023:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in thousands, except per share data)
94
Long-term debt
Long-term debt consisted of the following:
December 26,
December 28,
2020
2019
Private placement facilities
$
613,498
$
621,274
U.S. trade accounts receivable securitization
0
100,000
Note payable due in
2025
with an interest rate of
3.1
%
at December 26, 2020
1,554
0
Various
collateralized and uncollateralized loans payable with interest,
in varying installments through
2023
at interest rates
ranging from
2.62
% to
4.27
% at December 26, 2020 and
ranging from
2.56
% to
10.5
% at December 28, 2019
4,596
6,089
Finance lease obligations (see Note 7)
5,961
5,394
Total
625,609
732,757
Less current maturities
(109,836)
(109,849)
Total long-term debt
$
515,773
$
622,908
Private Placement Facilities
Our private placement facilities, with three insurance companies, have a
total facility amount of $
1
billion, and are
available on an uncommitted basis at fixed rate economic terms to be agreed upon
at the time of issuance, from
time to time through
June 23, 2023
.
The facilities allow us to issue senior promissory notes to the
lenders at a fixed
rate based on an agreed upon spread over applicable treasury notes at
the time of issuance.
The term of each
possible issuance will be selected by us and can range from
five
to
15 years
(with an average life no longer than
12
years
).
The proceeds of any issuances under the facilities will be used
for general corporate purposes, including
working capital and capital expenditures, to refinance existing indebtedness
and/or to fund potential acquisitions.
On June 29, 2018, we amended and restated the above private placement
facilities to, among other things, (i) permit
the consummation of the Animal Health Spin-off and (ii) provide for the issuance
of notes in Euros, British Pounds
and Australian Dollars, in addition to U.S. Dollars.
The agreements provide, among other things, that we maintain
certain maximum leverage ratios, and contain restrictions relating
to subsidiary indebtedness, liens, affiliate
transactions, disposal of assets and certain changes in ownership.
These facilities contain make-whole provisions in
the event that we pay off the facilities prior to the applicable due dates.
On June 23, 2020, we amended the private placement facilities to, among other things, (i) temporarily modify the
financial covenant from being based on total leverage ratio to net leverage ratio until March 31, 2021, (ii) increase
the maximum maintenance leverage ratio through March 31, 2021, but with a 1.00% interest rate increase on the
outstanding notes if the net leverage ratio exceeds 3.0x, which will remain in effect until we deliver financials for a
four-quarter period ending on or after June 30, 2021 showing compliance with the total leverage ratio requirement,
and (iii) make certain other changes conforming to the Credit Agreement, dated as of April 18, 2017, as amended.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents
 
HENRY SCHEIN, INC.
 
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in thousands, except per share data)
 
95
The components of our private placement facility borrowings as
of December 26, 2020 are presented in the
following table (in thousands):
 
Amount of
Date of
 
Borrowing
Borrowing
 
Borrowing
Outstanding
Rate
Due Date
January 20, 2012
 
(1)
$
14,286
3.09
%
January 20, 2022
January 20, 2012
50,000
3.45
January 20, 2024
December 24, 2012
50,000
3.00
December 24, 2024
June 2, 2014
100,000
3.19
June 2, 2021
June 16, 2017
100,000
3.42
June 16, 2027
September 15, 2017
100,000
3.52
September 15, 2029
January 2, 2018
100,000
3.32
January 2, 2028
September 2, 2020
 
(2)
100,000
2.35
September 2, 2030
Less: Deferred debt issuance costs
(788)
$
613,498
(1)
Annual
repayments of approximately $
7.1
million for this borrowing commenced on
January 20, 2016
.
(2)
On
September 2, 2020
, we refinanced our $
100
million private placement borrowing at
3.79
%, originally due on September 2, 2020,
with a similar
10-year borrowing
at
2.35
% maturing on
September 2, 2030
.
 
Preliminary
U.S. Trade Accounts Receivable SecuritizationAllocation as
of September
30, 2023
Measurement
Period
Adjustments
Preliminary
Allocation as
of December
30, 2023
Acquisition consideration:
Cash
$
326
$
3
$
329
Total consideration
$
326
$
3
$
329
Identifiable assets acquired and liabilities assumed:
Current assets
$
75
$
(8)
$
67
Intangible assets
155
(68)
87
Other noncurrent assets
33
13
46
Current liabilities
(33)
-
(33)
Long-term debt
(22)
-
(22)
Deferred income taxes
(55)
20
(35)
Other noncurrent liabilities
(27)
-
(27)
Total identifiable
 
We have a facility agreement with a bank, as agent, based on the securitization of our U.S. trade accountsnet assets
receivable that is structured as an asset-backed securitization program with pricing
committed for up to126
three years(43)
.
83
Our current facility, which has a purchase limit of Goodwill
200
46
246
Total net assets acquired
$
350326
million, was scheduled to expire on
April 29, 2022
.
On
June 22, 2020, the expiration date for this facility was extended to
June 12, 2023
and was amended to adjust certain
covenant levels for 2020.
As of December 26, 2020 and December 28, 2019, the borrowings outstanding
under this
securitization facility were $
0.03
million and $
100329
million, respectively.
At December 26, 2020, the interest rate on
borrowings under this facility was based on the asset-backed commercial
paper rate of
0.22
% plus
0.95
%, for a
combined rate of
1.17
%.
At December 28, 2019, the interest rate on borrowings under
this facility was based on
the asset-backed commercial paper rate of
1.90
% plus
0.75
%, for a combined rate of
2.65
%.
If our accounts receivable collection pattern changes due to customers
either paying late or not making payments,
our ability to borrow under this facility may be reduced.
We are required to pay a commitment fee of
25
to
45
basis points depending upon program utilization.
Goodwill is a result of expected synergies that are expected to originate from the
acquisition as well as the expected
growth potential of S.I.N.
The acquired goodwill is not deductible for tax purposes.
Measurement period
adjustments recorded in the year ended December 30, 2023 were primarily
a result of finalization of net working
capital adjustments and third party intangible valuations.
The following table summarizes the preliminary identifiable intangible assets
acquired as part of the acquisition of
S.I.N.:
 
 
 
 
 
 
 
 
 
 
 
 
2023
Weighted Average
Useful
Lives (in years)
Customer relationships and lists
$
38
7
Trademarks / Tradenames
13
10
Product development
36
8
Total
$
87
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
 
FINANCIAL STATEMENTS
(in thousands,millions, except share and per share data)
9687
As
The accounting for the acquisition of December 26, 2020,S.I.N. has not been completed
 
the aggregate amountsin several respects, including but not limited to
finalizing valuation assessments of long-term debt, including finance lease obligationsaccounts receivable, inventory, accrued liabilities and income and non-income
based taxes.
 
and netTo assist in the allocation of
deferred debt issuance costs of $
0.8
consideration,
 
million, maturing in eachwe engaged valuation specialists to determine the fair
value of intangible and tangible assets acquired and liabilities assumed.
We
will finalize the amounts recognized as
the information necessary to complete the analysis is obtained.
We expect to finalize these amounts as soon as
possible but no later than one year from the acquisition date.
The pro forma financial information has not been
presented because the impact of the next five years and thereafter areS.I.N. acquisition during the year ended
 
as follows:December 30, 2023 was immaterial to
our consolidated financial statements.
Acquisition of Biotech Dental
2021On April 5, 2023, we acquired a
57
% voting equity interest in Biotech Dental (“Biotech Dental”), which
 
is a
$
109,836
2022provider of dental implants, clear aligners, individualized prosthetics,
 
and innovative digital dental software based
11,607
2023in France.
 
1,916
2024Biotech Dental has several important solutions for dental practices
 
and dental labs, including Nemotec, a
100,303
2025comprehensive, integrated suite of planning and diagnostic software
 
using open architecture that connects disparate
1,839
Thereaftermedical devices to create a digital view of the patient, offering greater diagnostic
 
accuracy and an improved patient
400,108
Totalexperience.
 
The integration of Biotech Dental’s software with Henry Schein One’s industry-leading practice
$management software solutions will help customers streamline their
clinical as well as administrative workflow for
625,609the ultimate benefit of patients.
The following table aggregates the preliminary estimated fair value, as
of the date of acquisition, of consideration
paid and net assets acquired in the Biotech Dental acquisition, including
measurement period adjustments recorded
through December 30, 2023:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preliminary
Allocation as
of July 1, 2023
Measurement
Period
Adjustments
Allocation as
of December
30, 2023
Acquisition consideration:
Cash
$
216
$
-
$
216
Fair value of contributed equity share in a controlled subsidiary
25
-
25
Redeemable noncontrolling interests
182
-
182
Total consideration
$
423
$
-
$
423
Identifiable assets acquired and liabilities assumed:
Current assets
$
78
$
-
$
78
Intangible assets
119
28
147
Other noncurrent assets
76
10
86
Current liabilities
(50)
(9)
(59)
Long-term debt
(90)
16
(74)
Deferred income taxes
(38)
(7)
(45)
Other noncurrent liabilities
(16)
(7)
(23)
Total identifiable
net assets
79
31
110
Goodwill
344
(31)
313
Total net assets acquired
$
423
$
-
$
423
Goodwill is a result of expected synergies that are expected to originate from the
acquisition as well as the expected
growth potential of Biotech Dental.
The acquired goodwill is deductible for tax purposes.
Measurement period
adjustments recorded in the year ended December 30, 2023 were primarily
a result of preliminary third party
intangible valuation and various other adjustments.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
88
The following table summarizes the preliminary identifiable intangible assets
acquired as part of the acquisition of
Biotech Dental:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2023
Weighted Average
Useful
Lives (in years)
Customer relationships and lists
$
46
9
Trademarks / Tradenames
18
7
Product development
83
10
Total
$
147
The accounting for the acquisition of Biotech Dental has
not been completed in several areas, including but not
limited to pending assessments of accounts receivable, inventory, intangible assets, accrued liabilities and income
and non-income based taxes.
To assist in the allocation of consideration, we engaged valuation specialists to
determine the fair value of intangible and tangible assets acquired and liabilities
assumed.
We will finalize the
amounts recognized as the information necessary to complete the
analysis is obtained.
We expect to finalize these
amounts as soon as possible but no later than one year from the acquisition
date.
The pro forma financial
information has not been presented because the impact of the Biotech Dental
acquisition during the year ended
December 30, 2023 was immaterial to our consolidated financial statements.
Other 2023 Acquisitions
During the year ended December 30, 2023, we acquired companies within
the health care distribution and
technology and value-added services segments.
Our acquired ownership interest ranged between
51
% to
100
%.
The following table aggregates
the preliminary estimated fair value, as of the date of acquisition, of
consideration
paid and net assets acquired for these acquisitions during the year ended
December 30, 2023:
2023
Acquisition consideration:
Cash
$
168
Deferred consideration
4
Estimated fair value of contingent consideration payable
6
Fair value of previously held equity method investment
29
Redeemable noncontrolling interests
77
Total consideration
$
284
Identifiable assets acquired and liabilities assumed:
Current assets
$
32
Intangible assets
116
Other noncurrent assets
17
Current liabilities
(23)
Deferred income taxes
(11)
Long-term debt
(8)
Other noncurrent liabilities
(10)
Total identifiable
net assets
113
Goodwill
171
Total net assets acquired
$
284
Goodwill is a result of the expected synergies and cross-selling opportunities that
these acquisitions are expected to
provide for us, as well as the expected growth potential.
Approximately half of the acquired goodwill is deductible
for tax purposes.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
 
FINANCIAL STATEMENTS
(in thousands,millions, except share and per share data)
89
97
In connection with an acquisition of a controlling interest of an
affiliate, we recognized a gain of approximately $
18
million related to the remeasurement to fair value of our previously held
equity investment, using a discounted cash
flow model based on Level 3 inputs, as defined in
The following table summarizes the preliminary identifiable intangible
assets acquired during the year ended
December 30, 2023 and their estimated useful lives as of the date of the acquisition:
2023
Weighted Average
Useful
Lives (in years)
Customer relationships and lists
$
79
9
Trademarks / Tradenames
8
5
Non-compete agreements
2
5
Product development
7
7
Patents
1
10
Other
19
2
Total
$
116
The pro forma financial information has not been presented because the
impact of the acquisitions during the year
ended December 30, 2023 was immaterial to our consolidated financial
statements.
2022 Acquisitions
We completed several acquisitions during the year ended December 31, 2022, which were immaterial to our
consolidated financial statements.
Our acquired ownership interests ranged from between
55
% to
100
%.
Acquisitions in our health care distribution segment included companies
that specialize in the distribution of dental
products.
Within our technology and value-added services segment, we acquired a company that educates and
connects dental office managers, practice administrators and dental business leaders
across North America.
The following table aggregates the estimated fair value, as of the
date of acquisition, of consideration paid and net
assets acquired for acquisitions during the year ended December 31, 2022.
Approximately half of the acquired
goodwill is deductible for tax purposes.
2022
Acquisition consideration:
Cash
$
158
Deferred consideration
2
Fair value of previously held equity method investment
16
Redeemable noncontrolling interests
17
Total consideration
$
193
Identifiable assets acquired and liabilities assumed:
Current assets
$
41
Intangible assets
96
Other noncurrent assets
13
Current liabilities
(29)
Deferred income taxes
(6)
Other noncurrent liabilities
(8)
Total identifiable
net assets
107
Goodwill
86
Total net assets acquired
$
193
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
90
The following table summarizes the identifiable intangible assets acquired during
the year ended December 31,
2022 and their estimated useful lives as of the date of the acquisition:
Estimated
Useful Lives
2022
(in years)
Customer relationships and lists
$
81
8
-
12
Trademarks / Tradenames
9
5
Non-compete agreements
3
2
-
5
Other
3
10
Total
$
96
2021 Acquisitions
We completed several acquisitions during the year ended December 25, 2021, which were immaterial to our
financial statements.
Our acquired ownership interests ranged from between approximately
51
% to
100
%.
Acquisitions within our health care distribution segment included companies
that specialize in the distribution and
manufacturing of dental and medical products, a provider of home
medical supplies, and a provider of product
kitting and sterile packaging.
Within our technology and value-added services segment, we acquired companies
that focus on dental marketing and website solutions, practice transition
services, revenue cycle management, and
business analytics and intelligence software.
Approximately half of the acquired goodwill is deductible for tax
purposes.
The following table aggregates the estimated fair value, as of the date of
acquisition, of consideration paid and net
assets acquired for acquisitions during the year ended December 25, 2021
:
2021
Acquisition consideration:
Cash
$
579
Deferred consideration
11
Estimated fair value of contingent consideration receivable
(5)
Fair value of previously held equity method investment
8
Redeemable noncontrolling interests
181
Total consideration
$
774
Identifiable assets acquired and liabilities assumed:
Current assets
$
195
Intangible assets
317
Other noncurrent assets
51
Current liabilities
(93)
Deferred income taxes
(26)
Other noncurrent liabilities
(46)
Total identifiable
net assets
398
Goodwill
376
Total net assets acquired
$
774
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
91
The following table summarizes the identifiable intangible assets acquired during
the year ended December 25,
2021 and their estimated useful lives as of the date of the acquisition:
Estimated
Useful Lives
2021
(in years)
Customer relationships and lists
$
220
5
-
12
Trademarks / Tradenames
58
5
-
12
Product development
19
5
-
10
Non-compete agreements
5
3
-
5
Other
15
18
Total
$
317
For the years ended December 30, 2023, December 31, 2022 and December
25, 2021, there were no material
adjustments recorded in our financial statements relating to acquisitions
for which provisional amounts were
recorded in prior periods.
At December 25, 2021 we recorded an estimated contingent consideration
receivable of
$
5
million, which was subsequently increased by an additional $
5
million during 2022, by crediting income from
operations, based on delays in timing of government approval of a certain
product.
During the years ended December 30, 2023, December 31, 2022
and December 25, 2021 we incurred $
22
million,
$
9
million and $
7
million in acquisition costs, which are included in “selling, general
and administrative” within
our consolidated statements of income.
Divestiture
In the third quarter of 2021 we received contingent proceeds of $
10
million from the 2019 sale of Hu-Friedy,
resulting in the recognition of an after-tax gain of $
7
million.
During the fourth quarter of 2020 we received
contingent proceeds of $
2
million from the 2019 sale of Hu-Friedy, resulting in the recognition of an after-tax gain
of $
2
million.
We do not expect to receive any additional proceeds from the sale of Hu-Friedy.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
92
Note 6 – Property and Equipment, Net
Property and equipment, including related estimated useful lives, consisted
of the following as of:
December 30,
December 31,
2023
2022
Land
$
21
$
20
Buildings and permanent improvements
166
135
Leasehold improvements
103
94
Machinery and warehouse equipment
243
169
Furniture, fixtures and other
137
127
Computer equipment and software
500
411
1,170
956
Less accumulated depreciation and amortization
(672)
(573)
Property and equipment, net
$
498
$
383
Estimated Useful
Lives (in years)
Buildings and permanent improvements
40
Machinery and warehouse equipment
5
-
10
Furniture, fixtures and other
3
-
10
Computer equipment and software
3
-
10
Leasehold improvements are amortized on a straight-line basis over
the lesser of the useful life of the assets or the
remaining lease term.
Property and equipment related depreciation expense for the years
ended December 30, 2023, December 31, 2022
and December 25, 2021, was $
70
million, $
68
million and $
71
million, respectively.
Please see
for
finance lease amounts included in property and equipment, net within our
consolidated balance sheets.
During the year ended December 30, 2023 we recorded a $
27
million impairment of capitalized costs, within our
healthcare distribution segment.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
93
Note 7 – Leases
Leases
We have operating and finance leases for corporate offices, office space, distribution and other facilities, vehicles
and certain equipment.
 
Our leases have remaining terms of less than
one year
 
to approximately
16 years18
,
years, some of
which may include options to extend the leases for
up to 10 years
.15
years.
 
The components of lease expense were as
follows:
Years
 
Ended
December 26,30,
December 28,31,
2020December 25,
20192023
2022
2021
Operating lease cost:
$
(1) (2)99
$
86,800132
$
88,24689
Finance lease cost:
Amortization of right-of-use assets
2,209
1,154
Interest on lease liabilities
115
131
Total financeVariable
 
lease cost
$12
2,32411
10
Short-term lease cost
10
7
4
Total operating lease cost
(1)
121
150
103
Finance lease cost
5
3
3
Total lease cost
$
1,285126
$
153
$
106
(1)
Includes variable lease expenses.
(2)
OperatingTotal operating lease cost for each of the years ended December 26, 2020,30, 2023, December 31, 2022 and December 28, 2019, includes amortization25, 2021, included costs of right-of-use
assets of $
0.611
 
million, $
42
million and $
0
million, respectively, related to facility leases recorded in “Restructuring costs” "Restructuring and integration costs"
within our consolidated statements of income.
Further, for the years ended December 30, 2023,
 
December 31, 2022 and December 25, 2021, we recognized an
impairment of operating lease right-of-use assets of $
3
million, $
3
million, and $
0
million respectively, related to
facility leases recorded in “Restructuring and integration costs” within our consolidated
statement of income.
Supplemental balance sheet information related to leases is as follows:
Years
Ended
December 26,
December 28,
2020
2019
Operating Leases:
Operating lease right-of-use assets
$
288,847
$
231,662
Current operating lease liabilities
64,716
65,349
Non-current operating lease liabilities
238,727
176,267
Total operating lease liabilities
$
303,443
$
241,616
Finance Leases:
Property and equipment, at cost
$
10,683
$
10,268
Accumulated depreciation
(4,277)
(4,581)
Property and equipment, net of accumulated depreciation
$
6,406
$
5,687
Current maturities of long-term debt
$
2,420
$
1,736
Long-term debt
3,541
3,658
Total finance
lease liabilities
$
5,961
$
5,394
Weighted Average
Remaining Lease Term in
Years:
Operating leases
7.5
5.5
Finance leases
4.3
5.0
Weighted Average
Discount Rate:
Operating leases
2.8
%
3.4
%
Finance leases
1.9
%
2.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Years
Ended
December 30,
December 31,
2023
2022
Operating Leases:
Operating lease right-of-use assets
$
325
$
284
Current operating lease liabilities
80
73
Non-current operating lease liabilities
310
275
Total operating lease liabilities
$
390
$
348
Finance Leases:
Property and equipment, at cost
$
18
$
16
Accumulated depreciation
(9)
(6)
Property and equipment, net of accumulated depreciation
$
9
$
10
Current maturities of long-term debt
$
4
$
4
Long-term debt
4
6
Total finance
lease liabilities
$
8
$
10
Weighted Average
Remaining Lease Term in
Years:
Operating leases
6.6
6.7
Finance leases
2.6
3.1
Weighted Average
Discount Rate:
Operating leases
3.6
%
2.8
%
Finance leases
4.0
%
3.3
%
 
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
 
FINANCIAL STATEMENTS
(in thousands,millions, except share and per share data)
94
98
Supplemental cash flow information related to leases is as follows:
Years
 
Ended
December 26,30,
December 28,31,
20202023
20192022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases
$
76,98592
79,699
Operating cash flows for finance leases
101
9987
Financing cash flows for finance leases
2,1485
1,4133
Right-of-use assets obtained in exchange for lease obligations:
Operating leases
$
120,148124
297,80088
Finance leases
2,9474
2,9406
Maturities of lease liabilities are as follows:
December 26, 2020
Operating
Finance
Leases
Leases
2021
$
71,801
$
2,503
2022
58,049
1,542
2023
40,670
596
2024
28,899
327
2025
26,147
305
Thereafter
110,228
920
Total future
lease payments
335,794
6,193
Less imputed interest
(32,351)
(232)
Total
$
303,443
$
5,961
As of December 26, 2020, we have additional operating leases with total lease
payments of $
13.5
million
for
buildings and vehicles
that have not yet commenced.
These operating leases will commence subsequent to
December 26, 2020, with lease terms of
two years
to
10 years
.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 30, 2023
Operating
Finance
Leases
Leases
2024
$
92
$
4
2025
77
2
2026
64
1
2027
48
1
2028
38
1
Thereafter
119
-
Total future
lease payments
438
9
Less imputed interest
(48)
(1)
Total
$
390
$
8
As of December 30, 2023, we have additional operating leases that have
not yet commenced with total lease
payments of $
9
million for buildings and vehicles.
These operating leases will commence after December 30,
2023, with lease terms of
one year
to
10 years
.
Certain of our facilities related to our acquisitions are leased from
employees and minority shareholders.
These
leases are classified as operating leases and have a remaining lease term
ranging from
five months
to
14 years
.
As
of December 30, 2023, current and non-current liabilities associated with
related party operating leases were $
5
million and $
23
million, respectively.
At December 30, 2023 related party leases represented
6.3
% and
7.4
% of the
total current and non-current operating lease liabilities, respectively.
As of December 31, 2022, current and non-
current liabilities associated with related party operating leases were
$
4
million and $
14
million, respectively.
At
December 31, 2022 related party leases represented
5.0
% and
5.3
% of the total current and non-current operating
lease liabilities, respectively.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
 
FINANCIAL STATEMENTS
(in thousands,millions, except share and per share data)
9995
Note 8 – Redeemable Noncontrolling InterestsGoodwill and Other Intangibles, Net
Changes in the carrying amounts
of goodwill for the years ended December 30, 2023 and December
31, 2022 were
as follows:
 
Some minority stockholders in certain of our subsidiaries have the right,
 
at certain times, to require us to acquire
their ownership interest in those entities at fair value.
 
ASC 480-10 is applicable for noncontrolling interests where
we are or may be required to purchase all or a portion of the outstanding
 
interest in a consolidated subsidiary from
the noncontrolling interest holder under the terms of a put option
 
contained in contractual agreements.
 
The
components of the change in the Redeemable noncontrolling interests for the years
 
ended December 26, 2020,
December 28, 2019 and December 29, 2018 are presented in the following table:
 
December 26,Health Care
December 28,Distribution
December 29,Technology
and
2020Value-Added
2019Services
2018Total
Balance beginningas of period
December 25, 2021
$
287,2581,831
$
219,7241,023
$
465,5852,854
Decrease in redeemable noncontrolling interests dueAdjustments to goodwill:
redemptions
Acquisitions
(17,241)86
(2,270)(1)
(287,767)85
Increase in redeemable noncontrolling interests due toImpairment
business acquisitions(20)
28,387-
74,865(20)
4,655
Net income attributable to redeemable noncontrolling interests
13,363
14,838
15,327
Dividends declared
(12,631)
(10,264)
(8,206)
Effect of foreignForeign currency translation loss attributable to
redeemable noncontrolling interests
(22)
(4,279)(4)
(2,335)
(11,330)
Change in fair value of redeemable securities
32,842
(7,300)
41,460(26)
Balance endas of periodDecember 31, 2022
1,875
1,018
2,893
Adjustments to goodwill:
Acquisitions
827
118
945
Foreign currency translation
35
2
37
Balance as of December 30, 2023
$
327,6992,737
$
287,2581,138
$
219,7243,875
For the year ended December 31, 2022, we recorded a $
20
million impairment of goodwill relating to the disposal
of an unprofitable business whose estimated fair value was lower than
its carrying value.
The disposal of this
business is part of our restructuring initiative as more fully discussed
in
Other intangible assets consisted of the following:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 30, 2023
Weighted Average
Accumulated
Remaining Life
Cost
Amortization
Net
(in years)
Customer relationships and lists
$
984
$
(346)
$
638
10
Trademarks / Tradenames
168
(69)
99
8
Product development
205
(62)
143
9
Non-compete agreements
21
(6)
15
5
Other
39
(18)
21
10
Total
$
1,417
$
(501)
$
916
December 31, 2022
Weighted Average
Accumulated
Remaining Life
Cost
Amortization
Net
(in years)
Customer relationships and lists
$
826
$
(387)
$
439
10
Trademarks / Tradenames
125
(51)
74
8
Product development
90
(56)
34
9
Non-compete agreements
25
(6)
19
5
Other
31
(10)
21
17
Total
$
1,097
$
(510)
$
587
Trademarks, trade names, customer lists and customer relationships were established through
business acquisitions
and are amortized on a straight-line basis over their respective asset life.
Non-compete agreements represent
amounts paid primarily to prior owners of acquired businesses and certain
sales persons, in exchange for placing
restrictions on their ability to pose a competitive risk to us.
Such amounts are amortized, on a straight-line basis
over the respective non-compete period, which generally commences upon
termination of employment or
separation from us.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
96
Amortization expense, excluding impairment charges, related to definite-lived intangible assets
for the years ended
December 30, 2023, December 31, 2022 and December 25, 2021, was $
152
million, $
126
million and $
124
million.
During the year ended December 30, 2023 we recorded $
19
million of impairment charges related to businesses in
our health care distribution segment, the components of which were
$
7
million primarily related to customer lists
and relationships attributable to lower than anticipated operating
margins in certain businesses, and a $
12
million
charge related to the planned exit of a business.
These impairment charges were calculated as the differences
between the carrying values and the estimated fair values
of the impaired intangible assets, using a discounted
estimate of future cash flows.
Please see
for additional
details.
During the year ended December 31, 2022 we recorded $
49
million of impairment charges related to businesses in
our health care distribution segment, the components of which were
a $
15
million charge related to the disposal of
an unprofitable business and a $
34
million charge related to customer lists and relationships attributable to
customer attrition rates being higher than expected in certain other health
care distribution businesses.
These
impairment charges were calculated as the differences between the carrying values and the estimated
fair values
of
the impaired intangible assets, using a discounted estimate of future
cash flows.
Please see
for additional details.
During the year ended December 25, 2021, we recorded a $
1
million impairment charge related ratably to a
business within our health care distribution segment and a business within
our technology and value-added services
segment.
The above intangible asset impairment charges were recorded within selling, general
and administrative expenses
and in restructuring and integration charges in our consolidated statement of income.
The annual amortization expense expected to be recorded for existing
intangibles assets for the years 2024 through
2028 is $
157
million, $
138
million, $
121
million, $
109
million and $
91
million.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
97
Note 9 – Investments and Other
Investments and other consisted of the following:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 30,
December 31,
2023
2022
Investments in unconsolidated affiliates
 
$
180
$
161
Non-current deferred foreign, state and local income taxes
 
38
88
Notes receivable
(1)
44
28
Capitalized costs for software to be sold, leased or marketed to external
 
users
95
79
Security deposits
 
4
3
Acquisition-related indemnification
 
46
59
Non-current pension assets
9
8
Other long-term assets
55
46
Total
 
$
471
$
472
(1)
Long-term notes receivable carry interest rates ranging from
3.0
% to
10.0
% and are due in varying installments through
November 21, 2028
.
Amortization expense, primarily related to capitalized costs for software to
 
be sold, leased or marketed to external
users, for the years ended December 30, 2023, December 31, 2022 and
 
December 25, 2021, was $
26
 
million, $
18
million and $
15
 
million, respectively, and is included in the selling, general and administrative line within our
consolidated statements of income.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
 
FINANCIAL STATEMENTS
(in thousands,millions, except share and per share data)
10098
Note 9 – Comprehensive Income
Comprehensive income includes certain gains and losses that, under U.S.
GAAP,
are excluded from net income as
such amounts are recorded directly as an adjustment to stockholders’
equity.
The following table summarizes our Accumulated other comprehensive loss, net of
applicable taxes as of:
December 26,
December 28,
December 29,
2020
2019
2018
Attributable to Redeemable noncontrolling interests:
Foreign currency translation adjustment
$
(24,617)
$
(20,338)
$
(18,595)
Attributable to noncontrolling interests:
Foreign currency translation adjustment
$
235
$
(531)
$
(426)
Attributable to Henry Schein, Inc.:
Foreign currency translation adjustment
$
(76,565)
$
(143,172)
$
(234,799)
Unrealized loss from foreign currency hedging activities
(11,488)
(4,032)
(156)
Unrealized investment gain (loss)
1
6
(6)
Pension adjustment loss
(20,032)
(20,175)
(13,810)
Accumulated other comprehensive loss
$
(108,084)
$
(167,373)
$
(248,771)
Total Accumulated
other comprehensive loss
$
(132,466)
$
(188,242)
$
(267,792)
The following table summarizes the components of comprehensive income, net of
applicable taxes as follows:
December 26,
December 28,
December 29,
2020
2019
2018
Net income
$
419,423
$
719,138
$
562,126
Foreign currency translation gain (loss)
63,094
(4,070)
(136,356)
Tax effect
0
0
0
Foreign currency translation gain (loss)
63,094
(4,070)
(136,356)
Unrealized gain (loss) from foreign currency hedging activities
(10,224)
(4,911)
1,022
Tax effect
2,768
1,035
(396)
Unrealized gain (loss) from foreign currency hedging activities
(7,456)
(3,876)
626
Unrealized investment gain (loss)
(6)
14
(3)
Tax effect
1
(2)
0
Unrealized investment gain (loss)
(5)
12
(3)
Pension adjustment gain (loss)
(533)
(7,730)
4,212
Tax effect
676
1,806
(1,179)
Pension adjustment gain (loss)
143
(5,924)
3,033
Comprehensive income
$
475,199
$
705,280
$
429,426
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in thousands, except per share data)
101
Our financial statements are denominated in the U.S. Dollar currency.
Fluctuations in the value of foreign
currencies as compared to the U.S. Dollar may have a significant impact
on our comprehensive income.
The
foreign currency translation gain (loss) during the years ended December
26, 2020, December 28, 2019 and
December 29, 2018 was impacted by changes in foreign currency exchange
rates of the Euro, Brazilian Real,
British Pound and Australian Dollar
.
The following table summarizes our total comprehensive income, net of
applicable taxes as follows:
December 26,
December 28,
December 29,
2020
2019
2018
Comprehensive income attributable to
Henry Schein, Inc.
$
463,083
$
682,724
$
417,177
Comprehensive income attributable to
noncontrolling interests
3,032
9,827
3,432
Comprehensive income attributable to
Redeemable noncontrolling interests
9,084
12,729
8,817
Comprehensive income
$
475,199
$
705,280
$
429,426
Note 10 – Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or
paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
The hierarchy for determining that distinguishes
between (1) market participant assumptions developed based on market data obtained
from independent sources
(observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based
on
the best information available in the circumstances (unobservable inputs).
The fair value hierarchy consists of three broad levels, which gives the
highest priority to unadjusted quoted prices
in active markets for identical assets or liabilities (Level 1) and the lowest priority
to unobservable inputs (Level 3).
The three levels of the fair value hierarchy are described as follows:
•
Level 1— Unadjusted quoted prices in active markets for identical assets
or liabilities that are accessible at the
measurement date.
•
Level 2— Inputs other than quoted prices included within Level 1 that are observable
for the asset or liability,
either directly or indirectly. Level 2 inputs include: quoted prices for similar assets or liabilities in active markets;
quoted prices for identical or similar assets or liabilities in markets
that are not active; inputs other than quoted
prices that are observable for the asset or liability; and inputs that are
derived principally from or corroborated by
observable market data by correlation or other means.
•
Level 3— Inputs that are unobservable for the asset or liability.
The following section describes the fair values of our financial instruments
 
and the methodologies that we used to
measure their fair values.
 
Investments and notes receivable
There are no quoted market prices available for investments in unconsolidated
 
affiliates and notes receivable;receivable.
however, weCertain of our notes receivable contain variable interest rates.
We believe the carrying amounts are a reasonable
estimate of fair value based on the interest rates in the applicable markets.
 
inOur investments and notes receivable
fair value is based on Level 3 inputs within the fair value hierarchy.
applicable markets.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in thousands, except per share data)
102
Debt
The fair value of our debt (including bank credit lines) is classified aslines, current maturities
 
of long-term debt and long-term debt) is
based on Level 3 inputs within the fair value hierarchy, and as
of December 26, 202030, 2023 and December 28, 201931, 2022 was
estimated at $
699.02,351
 
million and $
756.71,149
 
million, respectively.
 
Factors that we considered when estimating the fair
value of our debt
include market conditions, such as interest
rates and credit
spreads.
 
Derivative contracts
Derivative contracts are valued using quoted market prices and
 
significant other observable and unobservable
inputs.
We use derivative instruments to minimize our exposure to fluctuations in foreign currency exchange
rates.
 
Our derivative
instruments primarily include foreign currency forward agreements, forecasted
 
agreements related to certain
intercompany loans, certain forecasted inventory purchase commitments, with
foreign suppliers and foreign
currency forward contracts, to hedge a portion of our euro-denominatedinterest rate swaps, and total return
 
foreign operations which are designated as
net investment hedges;
and a total return swap for the purpose of economically hedging
our unfunded non-qualified
SERP and our DCP.
swaps.
The fair values for the majority of our foreign currency derivative contracts
 
are obtained by comparing our contract
rate to a published forward price of the underlying market rates, which
 
isare based on market rates for comparable
transactions andthat are classified within Level 2 of the fair value hierarchy.
The fair value of the interest rate swap, which is classified within Level 2
 
Seeof the fair value hierarchy, is determined
Note 16 – Derivatives and Hedging
Activities
by comparing our contract rate to a forward market rate as of the
 
for additional information.valuation date.
The fair value of total return swaps is determined by valuing the underlying
 
exchange traded funds of the swap
using market-on-close pricing by industry providers as of the valuation
date that are classified within Level 2 of the
fair value hierarchy.
Redeemable noncontrolling interests
The values for Redeemableredeemable noncontrolling interests are based on recent
transactions and/or implied multiples of
earnings that are classified within
Level 3 of the fair value hierarchy and arehierarchy.
based on recent transactions and/or implied multiples of earnings.
 
See
Note 819 – Redeemable Noncontrolling
Interests
 
for additional information.
Assets measured on a non-recurring basis at fair value include intangibles.
Inputs for measuring intangibles are
classified as Level 3 within the fair value hierarchy.
See
Note 1 – Basis of Presentation and Significant Accounting
Policies
and
Note 8 – Goodwill and Other Intangibles, Net
for additional information.
 
 
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
99
The following table presents our assets and liabilities that are measured and
recognized at fair value on a recurring
basis classified under the appropriate level of the fair value hierarchy as of
December 30, 2023 and December 31,
2022:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in thousands, except per share data)
103
The following table presents our assets and liabilities that are measured and
recognized at fair value on a recurring
basis classified under the appropriate level of the fair value hierarchy as of
December 26, 2020 and December 28,
2019:
December 26, 202030, 2023
Level 1
Level 2
Level 3
Total
Assets:
Derivative contracts
designated as hedges
$
0-
$
1,8681
$
0-
$
1,8681
Derivative contracts undesignated
-
1
-
1
Total return
 
swapsswap
0-
1,5654
0-
1,5654
Total assets
$
0-
$
3,4336
$
0-
$
3,4336
Liabilities:
Derivative contracts
designated as hedges
$
0-
$
11,76518
$
0-
$
11,76518
Derivative contracts undesignated
-
2
-
2
Total liabilities
$
0-
$
11,76520
$
0-
$
11,76520
Redeemable noncontrolling interests
$
0-
$
0-
$
327,699864
$
327,699864
December 28, 201931, 2022
Level 1
Level 2
Level 3
Total
Assets:
Derivative contracts
designated as hedges
$
0-
$
56723
$
0-
$
56723
Derivative contracts undesignated
-
4
-
4
Total assets
$
0-
$
56727
$
0-
$
56727
Liabilities:
Derivative contracts
designated as hedges
$
0-
$
5,7951
$
0-
$
5,7951
Derivative contracts undesignated
-
3
-
3
Total return
swaps
-
3
-
3
Total liabilities
$
0-
$
5,7957
$
0-
$
5,7957
Redeemable noncontrolling interests
$
0-
$
0-
$
287,258576
$
287,258576
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
 
FINANCIAL STATEMENTS
(in thousands,millions, except share and per share data)
100
104
Note 11 – Business AcquisitionsConcentrations of Risk
Certain financial instruments potentially subject us to concentrations of
credit risk.
These financial instruments
consist primarily of cash equivalents, trade receivables, long-term investments,
notes receivable and Divestituresderivative
instruments.
 
In all cases, our maximum exposure to loss from credit
The operating results
risk equals the gross fair value of all acquisitions are reflectedthe financial
instruments.
We routinely maintain cash balances at financial institutions in our financial statements from theirexcess of insured amounts.
 
respective acquisitionWe have
dates.not experienced any loss in such accounts and we manage this risk through
maintaining cash deposits and other
highly liquid investments in high quality financial institutions.
We continuously assess the need for reserves for
such losses, which have been within our expectations.
We do not require collateral or other security to support
financial instruments subject to credit risk, except for long-term notes receivable.
We completed acquisitions duringlimit credit risk with respect to our cash equivalents, short-term and long-term investments and derivative
instruments, by monitoring the credit worthiness of the financial institutions
who are the counter-parties to such
financial instruments.
As a risk management policy, we limit the amount of credit exposure by diversifying and
utilizing numerous investment grade counter-parties.
With respect to our trade receivables, credit risk is somewhat limited due to a relatively large customer base
and its
dispersion across different types of health care professionals and geographic areas.
No single customer accounted
for more than
2
% of our net sales in either of the years ended December 30, 2023
or December 31, 2022.
With
respect to our sources of supply, our top 10 health care distribution suppliers and our single largest supplier
accounted for approximately
24
% and
4
%, respectively, of our aggregate purchases for the year ended December 26, 2020, which were immaterial to
30, 2023 and approximately
28
% and
4
%, respectively, of our financialaggregate purchases for the year ended December
statements individually.31, 2022.
Our long-term notes receivable primarily represent strategic financing arrangements
 
In the aggregate, these transactions resulted in consideration of $
57.8
million in 2020
related to business combinations, for net assets amounting to $
32.8
million.
As of December 26, 2020, we had
recorded $
36.9
million of identifiable intangibles, $
23.9
million of goodwill and $
26.4
million of non-controlling
interest, related to these acquisitions.with certain affiliates.
 
Some prior owners of acquired subsidiariesGenerally, these notes are eligible to receive additional
purchase price cash consideration if
secured by certain financial targets are met.
We have accrued liabilities for the estimated fair value of additional purchase
price consideration at the timeassets of the acquisition,
none of which are material.
Any adjustments to these accrualcounterparty; however, in most cases our security is
amounts are recorded in our consolidated statements of income.
For the years ended December 26, 2020,
December 28, 2019 and December 29, 2018, there were no material adjustments
recorded in our consolidated
statement of income relating to changes in estimated contingent purchase
price liabilities.
Divestitures of Investments
During the fourth quarter of 2019, we sold an equity investment
in Hu-Friedy Mfg. Co., LLC, a manufacturer of
dental instruments and infection prevention solutions.
Our investment was non-controlling, we were not involved
in running the business and had no representation on the board of directors.
During the fourth quarter of 2019, we
also sold certain other equity investments.
In the aggregate, the sales of these investments resulted in a pre-tax
gain
of approximately $
250.2
million, net of taxes of approximately $
63.4
million.
In the fourth quarter of 2020 we
received contingent proceeds of $
2.1
million from the 2019 sale of Hu-Friedy resulting in the recognition of an
additional after-tax gain of $1.6 million.
For the years ended December 28, 2019 and December 29,
2018, we
recognized approximately $
6.0
million and $
10.4
million of equity in earnings from these affiliates.
Acquisition Costs
During the years ended December 26, 2020, December 28, 2019, and December
29, 2018 we incurred $
5.9
million,
$
4.5
million and $
7.3
million in acquisition costs from continuing operations.
In February 2019, we completed the Animal Health Spin-off.
During the years ended December 26, 2020,
December 28, 2019, and December 29, 2018, we incurred $
0.1
million, $
23.6
million and $
38.9
million in
transaction costs associated with this transaction.
We
do not expect to incur additional spin-off related transaction
costs after December 26, 2020.
All transaction costs relatedsubordinate to the Animal Health Spin-offrights of other commercial financial institutions.
While we have been includedexposure to credit loss in the
event of non-performance by these counter-parties, we conduct ongoing
 
inassessments of their financial and
results from discontinued operations.operational performance.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
 
FINANCIAL STATEMENTS
(in thousands,millions, except share and per share data)
105101
Note 12 – Derivatives and Hedging Activities
We are exposed to market risks and changes in foreign currency exchange rates against the U.S. dollar and each
other, and changes to the credit risk of the derivative counterparties.
We attempt to minimize these risks using
foreign currency forward contracts and by maintaining counter-party credit limits.
Our hedging activities provide
only limited protection against currency exchange and credit risks.
Factors that could influence the effectiveness of
our hedging programs include currency markets and availability of hedging
instruments and liquidity of the credit
markets.
All foreign currency forward contracts that we enter are for the sole
purpose of hedging an existing or
anticipated currency exposure.
We do not enter into foreign currency forward contracts for speculative purposes
and we manage our credit risks by diversifying our counterparties,
maintaining a strong balance sheet and having
multiple sources of capital.
Our derivative instruments primarily include foreign currency forward contracts,
total
return swaps, and interest rate swaps.
During 2019 we entered foreign currency forward contracts that we
designated as net investment hedges to hedge a
portion of our euro-denominated foreign operations.
These net investment hedges offset changes in the U.S. dollar
value of our investments in certain euro-functional currency subsidiaries due
to fluctuating foreign exchange rates.
Gains and losses related to these net investment hedges are recorded
in accumulated other comprehensive loss
within our consolidated balance sheets.
Amounts excluded from the assessment of hedge effectiveness are
included
in interest expense within our consolidated statements of income.
The aggregate notional value of these net
investment hedges, which matured on
November 16, 2023
, was approximately €
200
million.
On November 3,
2023 we entered into new foreign currency forward contracts to
hedge a portion of our euro-denominated foreign
operations which are designated as net investment hedges.
The aggregate notional value of these net investment
hedges, which matured on
November 16, 2023
, was approximately €
200
million.
The aggregate notional value of
this net investment hedge, which matures on
November 3, 2028
, is approximately €
300
million.
During the years
ended December 30, 2023, December 31, 2022, and December 25, 2021,
we recorded an increase/(decrease) of
$
(32)
million, $
9
million, and $
11
million, respectively, within other comprehensive income related to these foreign
currency forward contracts.
See
for additional information.
On
March 20, 2020
, we entered a total return swap to economically hedge our unfunded
non-qualified SERP and
our DCP.
This swap will offset changes in our SERP and DCP liabilities.
At the swap’s inception, the notional
value of the investments in these plans was $
43
million.
At December 30, 2023, the notional value of the
investments in these plans was $
96
million.
At December 30, 2023, the financing blended rate for
this swap was
based on the Secured Overnight Financing Rate (“SOFR”) of
5.33
% plus
0.52
%, for a combined rate of
5.85
%.
For
the years ended December 30, 2023, December 31, 2022,
and December 25, 2021, we recorded within selling,
general and administrative expenses in our consolidated statement of income,
a gain (loss ) of $
10
million, ($
17
)
million, and $
12
million, respectively, net of transaction costs, related to this undesignated swap.
See
for additional information.
On July 11, 2023, we entered into interest rate swap agreements to hedge the cash flow of our variable
rate $
750
million floating debt term loan facility, with
three years
maturity, effectively changing the floating rate portion of
our obligation to a fixed rate.
Under the terms of the interest rate swap agreements, we receive variable
interest
payments based on the one-month Term SOFR rate and pay interest at a fixed rate.
As of December 30, 2023, the
notional value of the interest rate swap agreements was $
741
million.
For the year ended December 30, 2023, we
recorded, within accumulated other comprehensive loss within our consolidated
balance sheets, a loss of $
10
million related to the change in the fair value of these interest rate
swap agreements, since we have designated these
swaps agreements as cash flow hedges.
Fluctuations in the value of certain foreign currencies as compared
to the U.S. dollar may positively or negatively
affect our revenues, gross margins, operating expenses and retained earnings, all of which are expressed
in U.S.
dollars.
Where we deem it prudent, we engage in hedging programs using primarily
foreign currency forward
contracts aimed at limiting the impact of foreign currency exchange
rate fluctuations on earnings.
We purchase
short-term (i.e., generally 18 months or less) foreign currency forward contracts
to protect against currency
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
102
exchange risks associated with intercompany loans due from our international
subsidiaries and the payment of
merchandise purchases to our foreign suppliers.
We do not hedge the translation of foreign currency profits into
U.S. dollars, as we consider foreign currency translation to be an accounting
exposure, not an economic
exposure.
Amounts related to our hedging activities are recorded in prepaid
expenses and other and/or accrued
expenses: other within our consolidated balance sheets.
The following table summarizes the terms and fair value of our outstanding derivative
financial instruments as of
December 30, 2023 and December 31, 2022:
December 30, 2023
Notional
Amount
Classification
Fair
Value
Maturity Date
Derivatives used in cash flow hedges:
Foreign currency forward contracts
$
102
Accrued expenses, other
$
(1)
November 21, 2024
Interest rate swaps
741
Accrued expenses, other
(10)
July 13, 2026
Derivatives used in net investment hedges:
Foreign currency forward contracts
352
Accrued expenses, other
(6)
November 3, 2028
Undesignated hedging relationships:
Total return
swaps
96
Prepaid expenses and other
4
January 3, 2024
Total
$
1,291
$
(13)
December 31, 2022
Notional
Amount
Classification
Fair
Value
Maturity Date
Derivatives used in cash flow hedges:
Foreign currency forward contracts
$
123
Prepaid expenses and other
$
2
December 28, 2023
Derivatives used in net investment hedges:
Foreign currency forward contracts
200
Prepaid expenses and other
20
November 16, 2023
Undesignated hedging relationships:
Total return
swaps
78
Accrued expenses, other
(3)
January 4, 2023
Total
$
401
$
19
The following table summarizes the effect of cash flow hedges and net investment hedges
on our consolidated
statements of income for the years ended
December 30, 2023, December 31, 2022 and December
25, 2021:
Years
Ended
December 30,
December 31,
December 25,
2023
2022
2021
Derivatives used in cash flow hedges:
Foreign currency forward contracts
$
(1)
$
-
$
1
Interest rate swaps
(7)
-
-
Derivatives used in net investment hedges:
Foreign currency forward contracts
(10)
7
8
Total
$
(18)
$
7
$
9
The amount of gains or losses reclassified from accumulated other comprehensive
loss into income were not
material for the years ended December 30, 2023, December 31, 2022,
and December 25, 2021.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
103
Note 13 – Debt
Bank Credit Lines
Bank credit lines consisted of the following:
December 30,
December 31,
2023
2022
Revolving credit agreement
$
200
$
-
Other short-term bank credit lines
64
103
Total
$
264
$
103
Revolving Credit Agreement
On
August 20, 2021
, we entered a $
1.0
billion revolving credit agreement (the “Revolving Credit Agreement”)
which was scheduled to mature on
August 20, 2026
.
On
July 11, 2023
, we amended and restated the Revolving
Credit Agreement to, among other things, extend the maturity date
to
July 11, 2028
and update the interest rate
provisions to reflect the current market approach for a multicurrency
facility.
The interest rate on this revolving
credit facility is based on Term Secured Overnight Financing Rate (“Term SOFR”) plus a spread based on our
leverage ratio at the end of each financial reporting quarter.
The Revolving Credit Agreement requires, among
other things, that we maintain certain maximum leverage ratios.
Additionally, the Revolving Credit Agreement
contains customary representations, warranties and affirmative covenants as well
as customary negative covenants,
subject to negotiated exceptions, on liens, indebtedness, significant corporate
changes (including mergers),
dispositions and certain restrictive agreements.
As of December 30, 2023 and December 31, 2022, we had $
200
million and $
0
million in borrowings, respectively under this revolving credit facility.
During the year ended
December 30, 2023, the average outstanding balance under the Revolving Credit
Agreement was approximately
$
61
million.
As of December 30, 2023 and December 31, 2022, there were $
10
million and $
9
million of letters of
credit, respectively, provided to third parties under this Revolving Credit Agreement.
Other Short-Term Bank Credit
Lines
As of December 30, 2023 and December 31, 2022, we had various other
short-term bank credit lines available, in
various currencies, with a maximum borrowing capacity of $
368
million and $
402
million, respectively.
As of
December 30, 2023 and December 31, 2022, $
64
million and $
103
million, respectively, were outstanding.
During
the year ended December 30, 2023, the average outstanding balances under our
various other short-term bank credit
lines was approximately $
115
million.
At December 30, 2023 and December 31, 2022, borrowings under
other
short-term bank credit lines had weighted average interest rates of
6.02
% and
10.11
%, respectively.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
104
Long-term debt
Long-term debt consisted of the following:
December 30,
December 31,
2023
2022
Private placement facilities
$
1,074
$
699
U.S. trade accounts receivable securitization
210
330
Term loan
741
-
Various
collateralized and uncollateralized loans payable with interest,
in varying installments through 2030 at interest rates
from
0.00
% to
9.42
% at December 30, 2023 and
from
0.00
% to
3.50
% at December 31, 2022
54
7
Finance lease obligations
8
10
Total
2,087
1,046
Less current maturities
(150)
(6)
Total long-term debt
$
1,937
$
1,040
As of December 30, 2023,
the aggregate amounts of long-term debt, including finance lease obligations
and net of
deferred debt issuance costs of $
1
million, maturing in each of the next five years and thereafter
are as follows:
2024
$
150
2025
231
2026
721
2027
104
2028
179
Thereafter
702
Total
$
2,087
Private Placement Facilities
Our private placement facilities include four insurance companies, have
a total facility amount of $
1.5
billion, and
are available on an uncommitted basis at fixed rate economic
terms to be agreed upon at the time of issuance, from
time to time through
October 20, 2026
.
The facilities allow us to issue senior promissory notes to the
lenders at a
fixed rate based on an agreed upon spread over applicable treasury notes
at the time of issuance.
The term of each
possible issuance will be selected by us and can range from
five
to
15 years
(with an average life no longer than
12
years
).
The proceeds of any issuances under the facilities will be used
for general corporate purposes, including
working capital and capital expenditures, to refinance existing indebtedness,
and/or to fund potential acquisitions.
The agreements provide, among other things, that we maintain
certain maximum leverage ratios, and contain
restrictions relating to subsidiary indebtedness, liens, affiliate transactions, disposal
of assets and certain changes in
ownership.
These facilities contain make-whole provisions in the event that we
pay off the facilities prior to the
applicable due dates.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
105
The components of our private placement facility borrowings, which
have a weighted average interest rate of
3.65
%, as of December 30, 2023 are presented in the following table:
Amount of
Date of
Borrowing
Borrowing
Borrowing
Outstanding
Rate
Due Date
January 20, 2012
$
50
3.45
%
January 20, 2024
December 24, 2012
50
3.00
December 24, 2024
June 16, 2017
100
3.42
June 16, 2027
September 15, 2017
100
3.52
September 15, 2029
January 2, 2018
100
3.32
January 2, 2028
September 2, 2020
100
2.35
September 2, 2030
June 2, 2021
100
2.48
June 2, 2031
June 2, 2021
100
2.58
June 2, 2033
May 4, 2023
75
4.79
May 4, 2028
May 4, 2023
75
4.84
May 4, 2030
May 4, 2023
75
4.96
May 4, 2033
May 4, 2023
150
4.94
May 4, 2033
Less: Deferred debt issuance costs
(1)
Total
$
1,074
U.S. Trade Accounts Receivable Securitization
We have a facility agreement based on our U.S. trade accounts receivable that is structured as an asset-backed
securitization program with pricing committed for up to
three years
.
This facility agreement has a purchase limit of
$
450
million with
two
banks as agents, and expires on
December 15, 2025
.
As of December 30, 2023 and December 31, 2022, the borrowings outstanding
under this securitization facility
were $
210
million and $
330
million, respectively.
At December 30, 2023, the interest rate on borrowings under
this facility was based on the asset-backed commercial paper rate of
5.67
% plus
0.75
%, for a combined rate of
6.42
%.
At December 31, 2022, the interest rate on borrowings under
this facility was based on the asset-backed
commercial paper rate of
4.58
% plus
0.75
%, for a combined rate of
5.33
%.
If our accounts receivable collection pattern changes due to customers
either paying late or not making payments,
our ability to borrow under this facility may be reduced.
We are required to pay a commitment fee of
30
to
35
basis points depending upon program utilization.
On December 20, 2023 and February 23, 2024, we amended this facility
to temporarily adjust certain covenant
levels.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
106
Term Loan
On July 11, 2023, we entered into a
three-year
$
750
million term loan credit agreement (the “Term Credit
Agreement”).
The interest rate on this term loan is based on the Term SOFR plus a spread based on our leverage
ratio at the end of each financial reporting quarter.
This term loan matures on July 11, 2026.
We are required to make quarterly payments of $
5
million from September 2023 through June 2024 and quarterly
payments of $
9
million from September 2024 through June 2026, with the remaining balance
due in July 2026.
As
of December 30, 2023, the borrowings outstanding under this term
loan were $
741
million.
At December 30, 2023,
the interest on this Term Credit Agreement was
5.36
% plus
1.35
% for a combined rate of
6.71
%.
However, we
have a hedge in place (see
for additional information) that ultimately
creates an effective fixed rate of
5.79
%.
The Term Credit Agreement requires, among other things, that we
maintain certain maximum leverage ratios.
Additionally, the Term
Credit Agreement contains customary
representations, warranties and affirmative covenants as well as customary negative
covenants, subject to
negotiated exceptions, on liens, indebtedness, significant corporate changes
(including mergers), dispositions and
certain restrictive agreements.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
107
Note 14 – Income Taxes
Income before taxes and equity in earnings of affiliates was as follows:
Years
ended
December 30,
December 31,
December 25,
2023
2022
2021
Domestic
$
424
$
506
$
593
Foreign
118
215
238
Total
$
542
$
721
$
831
The provisions for income taxes were as follows:
Years
ended
December 30,
December 31,
December 25,
2023
2022
2021
Current income tax expense:
U.S. Federal
$
72
$
150
$
129
State and local
28
49
37
Foreign
40
44
43
Total current
140
243
209
Deferred income tax expense (benefit):
U.S. Federal
9
(48)
(12)
State and local
(3)
(13)
(3)
Foreign
(26)
(12)
4
Total deferred
(20)
(73)
(11)
Total provision
$
120
$
170
$
198
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
108
The tax effects of temporary differences that give rise to our deferred income tax asset (liability) were
as follows:
Years
Ended
December 30,
December 31,
2023
2022
Deferred income tax asset:
Net operating losses
$
90
$
64
Other carryforwards
34
10
Inventory, premium
coupon redemptions and accounts receivable
valuation allowances
44
57
Operating lease liability
80
77
Other asset
66
60
Total deferred income
tax asset
314
268
Valuation
allowance for deferred tax assets
(1)
(36)
(36)
Net deferred income tax asset
278
232
Deferred income tax liability
Intangibles amortization
(219)
(112)
Operating lease right-of-use asset
(65)
(61)
Property and equipment
(10)
(7)
Total deferred tax
liability
(294)
(180)
Net deferred income tax asset (liability)
$
(16)
$
52
(1)
Primarily relates to operating losses, the benefits of which are uncertain.
Any future reductions of such valuation allowances will be
reflected as a reduction of income tax expense.
The assessment of the amount of value assigned to our deferred tax assets under
the applicable accounting rules is
judgmental.
We
are required to consider all available positive and negative evidence
in evaluating the likelihood
that we will be able to realize the benefit of our deferred tax assets in the future.
Such evidence includes reversals
of deferred tax liabilities and projected future taxable income.
Since this evaluation requires consideration of
events that may occur some years into the future, there is an element of
judgment involved.
Realization of our
deferred tax assets is dependent on generating sufficient taxable income in future periods.
We
believe that it is
more likely than not that future taxable income will be sufficient to allow us to recover
substantially all of the value
assigned to our deferred tax assets.
However, if future events cause us to conclude that it is not more likely than
not that we will be able to recover the value assigned to our deferred tax assets, we
will be required to adjust our
valuation allowance accordingly.
As of December 30, 2023, we had federal, state and foreign net operating
loss carryforwards of approximately
$
37
million, $
69
million and $
317
million, respectively.
The federal, state and foreign net operating loss
carryforwards will begin to expire in various years from 2024 through
2043.
The amounts of federal, state and
foreign net operating losses that can be carried-forward indefinitely are $
37
million, $
23
million and $
304
million,
respectively.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
109
The tax provisions differ from the amount computed using the federal statutory income
tax rate as follows:
Years
ended
December 30,
December 31,
December 25,
2023
2022
2021
Income tax provision at federal statutory rate
$
114
$
151
$
175
State income tax provision, net of federal income tax effect
15
20
21
Foreign income tax provision
5
4
6
Pass-through noncontrolling interest
(8)
(4)
(4)
Valuation
allowance
(3)
(2)
(6)
Unrecognized tax benefits and audit settlements
9
11
7
Interest expense related to loans
(13)
(12)
(11)
Tax on global
intangible low-taxed income ("GILTI")
7
6
5
Other
(6)
(4)
5
Total income
tax provision
$
120
$
170
$
198
For the year ended December 30, 2023 our effective tax rate was
22.1
%, compared to
23.5
% for the prior year
period.
In 2023, the difference between our effective tax rate and the federal statutory tax rate primarily
relates to
state and foreign income taxes and interest expense.
In 2022, the difference between our effective tax rate and the
federal statutory tax rate was primarily due to state and foreign income
taxes and interest expense.
In 2021, our
effective tax rate was
23.8
%, the difference between our effective tax rate and the federal statutory tax rate was
primarily due to state and foreign income taxes and interest expense.
On December 22, 2017, the U.S. government passed the Tax Cuts and Jobs Act, which requires U.S. companies to
pay a mandatory one-time transition tax on historical offshore earnings that have not
been repatriated to the U.S.
The transition tax is payable over eight years.
Within our consolidated balance sheets, transition tax of $
11
million
and $
19
million were included in “accrued taxes” for 2023 and 2022, respectively, and $
24
million and $
23
million
were included in “other liabilities” for 2023 and 2022, respectively.
Due to the one-time transition tax and the imposition of the GILTI provisions, all previously unremitted earnings
will no longer be subject to U.S. federal income tax; however, there could be U.S., state and/or foreign withholding
taxes upon distribution of such unremitted earnings.
Determination of the amount of unrecognized deferred tax
liability with respect to such earnings is not practicable.
The Organization of Economic Co-Operation and Development (OECD) issued
technical and administrative
guidance on Pillar Two Model Rules in December 2021, which provides for a global minimum tax rate on the
earnings of large multinational businesses, on a country-by-country basis.
Effective January 1, 2024, the minimum
global tax rate is 15% for various jurisdictions pursuant to the Pillar Two framework.
Future tax reform resulting
from these developments may result in changes to long-standing tax principles,
which may adversely impact our
effective tax rate going forward or result in higher cash tax liabilities.
As we operate in jurisdictions which have
adopted Pillar 2, we are continuing to analyze the implications to effectively manage
the impact for 2024 and
beyond.
ASC Topic 740 prescribes the accounting for uncertainty in income taxes recognized in accordance with other
provisions contained within its guidance.
This topic prescribes a recognition threshold and a measurement
attribute
for the financial statement recognition and measurement of tax positions taken or
expected to be taken in a tax
return.
For those benefits to be recognized, a tax position must be
more likely than not to be sustained upon
examination by the taxing authorities.
The amount recognized is measured as the largest amount of benefit that has
a greater than 50% likelihood of being realized upon ultimate audit settlement.
In the normal course of business,
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
110
our tax returns are subject to examination by various taxing authorities.
Such examinations may result in future tax
and interest assessments by these taxing authorities for uncertain tax positions
taken in respect of certain tax
matters.
The total amount of unrecognized tax benefits, which are included in “other
liabilities” within our consolidated
balance sheets, as of December 30, 2023 and December 31, 2022, was $
115
million and $
94
million, respectively,
of which $
107
million and $
80
million, respectively, would affect the effective tax rate if recognized.
It is possible
that the amount of unrecognized tax benefits will change in the next 12
months, which may result in a material
impact on our consolidated statements of income.
All tax returns audited by the IRS are officially closed through 2019.
The tax years subject to examination by the
IRS include years 2020 and forward.
In addition, limited positions reported in the 2017 tax year are subject
to IRS
examination.
The amount of tax interest expense included as a component of the provision
for taxes was $
4
million, $
0
million
and $
0
million in 2023, 2022 and 2021, respectively.
The total amount of accrued interest is included in “other
liabilities,” and was $
16
million as of December 30, 2023 and $
12
million as of December 31, 2022.
The amount
of penalties accrued for during the periods presented were not material to
our consolidated financial statements.
The following table provides a reconciliation of unrecognized tax benefits:
December 30,
December 31,
December 25,
2023
2022
2021
Balance, beginning of period
$
82
$
71
$
70
Additions based on current year tax positions
9
14
3
Additions based on prior year tax positions
26
8
11
Reductions based on prior year tax positions
(2)
-
(1)
Reductions resulting from settlements with taxing authorities
(3)
(1)
(9)
Reductions resulting from lapse in statutes of limitations
(14)
(10)
(3)
Balance, end of period
$
98
$
82
$
71
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
111
Note 15 – Plans of Restructuring
and Integration Costs
 
On July 9, 2018, we committed to an initiative to rationalize our operations and
provide expense
efficiencies.
These actions allowed us to execute on our plan to reduce our cost structure
and fund new initiatives
to drive growth under our 2018 to 2020 strategic plan.
This initiative resulted in the elimination of approximately
4
% of our workforce and the closing of certain facilities.
On November 20, 2019,August 1, 2022, we committed to a contemplated initiative, intendedrestructuring plan focused on
 
to mitigate stranded costs associatedfunding the priorities of the BOLD+1 strategic
with the Animal Health Spin-off and to rationalizeplan, streamlining operations and other initiatives to provide expense efficiencies.increase efficiency.
 
These activitiesWe revised our previous expectations of
were originally expected to be completed bycompletion and we have extended this initiative through the end of 2020.2024.
 
As a result of the business environment brought on
by the COVID-19 pandemic, we are continuing our restructuring activities
into 2021. We are currently unable in
good faith to
make a determination of an estimate of the amount or range of amounts
 
amounts expected to be incurred in
connection with
these activities, in 2021, both with respect to each
major type of cost associated
therewith and with
respect to the total cost, or an
estimate of the amount or range of amounts
that will result in future cash
expenditures.
 
cash expenditures.
During the years ended December 26, 2020,30, 2023, December 28, 2019,31, 2022, and December
 
29, 201825, 2021, we recorded restructuring
chargesrestructuring costs of $
32.180
 
million, $
14.7128
 
million, and $
54.48
 
million, respectively.
 
The restructuring costs associated withfor these
restructuringsperiods primarily related to severance and employee-related costs,
impairment of intangible assets, accelerated
amortization of right-of-use lease assets and fixed assets, other lease exit
costs, and certain business exit costs
discussed below.
During the year ended December 30, 2023, in connection with our restructuring
plan, we recorded an impairment of
an intangible asset of $
12
million related to a planned disposal of a non-U.S. business.
The disposal is expected to
be completed in 2024.
This impairment is included in the $
80
million of restructuring charges discussed above.
During the year ended December 31, 2022, in connection with our
restructuring plan, we vacated
one
of the
buildings at our corporate headquarters in Melville, New York, which resulted in an accelerated amortization of a
right-of-use lease asset of $
34
million.
We also initiated the disposal of a non-profitable U.S. business and
recorded related costs of $
49
million, which primarily consisted of impairment of intangible
assets and goodwill,
inventory impairment, and severance and employee-related costs.
These expenses are included in a separate line item, “Restructuring costs” withinthe $
128
 
our consolidated statements ofmillion
income.of restructuring charges discussed above.
The disposal was completed during the first quarter of 2023.
On August 26, 2022, we acquired Midway Dental Supply.
 
In connection with this acquisition, during the year
ended December 31, 2022, we recorded integration costs of $
3
million related to one-time employee and other
The following table showscosts, as well as restructuring charges of $
9
million, which are included in the amounts expensed and paid for$
128
million of restructuring charges
discussed above.
On November 20, 2019, we committed to a contemplated restructuring
 
initiative intended to mitigate stranded costs that
associated with the spin-off of our animal health business and to rationalize operations
and provide expense
efficiencies.
These activities were incurred during our
2020, 2019 and 2018 fiscal years and the remaining accrued balanceoriginally expected to be completed by
 
the end of restructuring costs as2020 but we extended them to
the end of December 26,
2020, which is included2021 in Accrued expenses: Other and Other liabilitieslight of the changes to the business environment brought
 
within our consolidated balance sheet:
Facility
Severance
Closing
Costs
Costs
Other
Total
Balance, December 30, 2017on by the COVID-19 pandemic.
 
The
$
3,087
$
1,315
$
24
$
4,426
Provisionrestructuring activities under this prior initiative were completed
 
in 2021.
50,197
3,153
1,017
54,367
Payments and other adjustments
(23,320)
(2,865)
(883)
(27,068)
Balance, December 29, 2018
$
29,964
$
1,603
$
158
$
31,725
Provision
13,741
937
27
14,705
Payments and other adjustments
(30,794)
(1,714)
(112)
(32,620)
Balance, December 28, 2019
$
12,911
$
826
$
73
$
13,810
Provision
25,855
5,878
360
32,093
Payments and other adjustments
(26,152)
(6,309)
(329)
(32,790)
Balance, December 26, 2020
$
12,614
$
395
$
104
$
13,113
 
The following table shows,
 
by reportable segment, the amounts expensed
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and paid for restructuring costs
that wereper share data)
incurred during our 2020, 2019 and 2018 fiscal years and the remaining accrued
balance of restructuring costs as of
December 26, 2020:
112
TechnologyRestructuring and integration costs recorded during our 2023, 2022 and
 
and2021 fiscal years consisted of the
Health Care
Value-Added
Distribution
Services
Total
Balance, December 30, 2017
$
4,426
$
0
$
4,426
Provision
50,824
3,543
54,367
Payments and other adjustments
(24,959)
(2,109)
(27,068)
Balance, December 29, 2018
$
30,291
$
1,434
$
31,725
Provision
13,935
770
14,705
Payments and other adjustments
(30,853)
(1,767)
(32,620)
Balance, December 28, 2019
$
13,373
$
437
$
13,810
Provision
30,935
1,158
32,093
Payments and other adjustments
(31,484)
(1,306)
(32,790)
Balance, December 26, 2020
$
12,824
$
289
$
13,113following:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in thousands, except per share data)
106
Note 13 – Earnings Per Share
Basic earnings per share is computed by dividing net income attributable
to Henry Schein, Inc. by the weighted-
average number of common shares outstanding for the period.
Our diluted earnings per share is computed similarly
to basic earnings per share, except that it reflects the effect of common shares issuable
for presently unvested
restricted stock and restricted stock units and upon exercise of stock options,
using the treasury stock method in
periods in which they have a dilutive effect.
A reconciliation of shares used in calculating earnings per basic and
diluted share follows:
Years
Ended
December 26,
December 28,
December 29,
2020
2019
2018
Basic
142,504
147,817
152,656
Effect of dilutive securities:
Stock options, restricted stock and restricted stock units
900
1,440
1,051
Diluted
143,404
149,257
153,707
Note 14 – Income Taxes
Income before taxes and equity in earnings of affiliates was as follows:
Years
ended
December 26,
December 28,
December 29,
2020
2019
2018
Domestic
$
430,838
$
507,003
$
405,289
Foreign
69,057
173,304
131,547
Total
$
499,895
$
680,307
$
536,836
The provisions for income taxes were as follows:
Years
ended
December 26,
December 28,
December 29,
2020
2019
2018
Current income tax expense:
U.S. Federal
$
82,912
$
93,418
$
71,854
State and local
24,640
28,150
22,533
Foreign
40,799
42,004
38,433
Total current
148,351
163,572
132,820
Deferred income tax expense (benefit):
U.S. Federal
(18,032)
5,633
206
State and local
(4,889)
1,597
(1,622)
Foreign
(30,056)
(11,287)
(23,972)
Total deferred
(52,977)
(4,057)
(25,388)
Total provision
$
95,374
$
159,515
$
107,432
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Year
Ended December 30, 2023
Health Care Distribution
Technology
and Value-Added
Services
Restructuring
Costs
Integration
Costs
Restructuring
Costs
Integration
Costs
Total
Severance and employee-related costs
$
41
$
-
$
5
$
-
$
46
Impairment and accelerated depreciation and
amortization of right-of-use lease assets and
other long-lived assets
13
-
2
-
15
Exit and other related costs
5
-
1
-
6
Loss on disposal of a business
13
-
-
-
13
Total restructuring and integration costs
$
72
$
-
$
8
$
-
$
80
Year
Ended December 31, 2022
Health Care Distribution
Technology
and Value-Added
Services
Restructuring
Costs
Integration
Costs
Restructuring
Costs
Integration
Costs
Total
Severance and employee-related costs
$
25
$
-
$
4
$
-
$
29
Impairment and accelerated depreciation and
amortization of right-of-use lease assets and
other long-lived assets
47
-
-
-
47
Exit and other related costs
3
-
-
-
3
Loss on disposal of a business
49
-
-
-
49
Integration employee-related and other costs
-
3
-
-
3
Total restructuring and integration costs
$
124
$
3
$
4
$
-
$
131
Year
Ended December 25, 2021
Health Care Distribution
Technology
and Value-Added
Services
Restructuring
Costs
Integration
Costs
Restructuring
Costs
Integration
Costs
Total
Severance and employee-related costs
$
6
$
-
$
2
$
-
$
8
Total restructuring and integration costs
$
6
$
-
$
2
$
-
$
8
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
 
FINANCIAL STATEMENTS
(in thousands,millions, except share and per share data)
113
107
The tax effectsfollowing table summarizes, by reportable segment, the activity related
to the liabilities associated with our
restructuring initiatives for the year ended December 30, 2023.
The remaining accrued balance of temporary differences that give rise to our deferred income tax asset (liability) wererestructuring
costs as follows:
Years
Ended
of December 26,
December 28,
2020
2019
Deferred income tax asset:
Investment in partnerships
$
(6,294)
$
1,420
Net operating losses and other carryforwards
64,297
43,663
Inventory, premium
coupon redemptions and accounts receivable
valuation allowances
56,668
23,808
Stock-based compensation
4,858
14,075
Uniform capitalization adjustment to inventories
6,895
7,259
Operating lease right of use asset
74,674
56,780
Other asset
49,260
33,311
Total deferred income
tax asset
250,358
180,316
Valuation
allowance for deferred tax assets
(1)
(40,496)
(20,699)
Net deferred income tax asset
209,862
159,617
Deferred income tax liability
Intangibles amortization
(118,165)
(135,754)
Operating lease liability
(71,343)
(54,672)
Property and equipment
(7,820)
(10,555)
Total deferred tax
liability
(197,328)
(200,981)
Net deferred income tax asset (liability)
$
12,534
$
(41,364)
(1)
Primarily30, 2023, which primarily relates to operating losses , the benefits of which are uncertain.severance and
 
Any future reductions of such valuation allowances will beemployee-related costs, is included in
reflected as a reduction of income tax expense.accrued expenses: other within our consolidated balance sheets.
Liabilities related to exited leased facilities are
recorded within our current and non-current operating lease liabilities within
our condensed consolidated balance
sheets.
The assessment of the amount of value assigned to our deferred tax assets under
the applicable accounting rules is
judgmental.
We are required to consider all available positive and negative evidence in evaluating the likelihood
that we will be able to realize the benefit of our deferred
tax assets in the future.
Such evidence includes scheduled
reversals of deferred tax liabilities, projected future taxable income, tax planning
strategies and the results of recent
operations.
Since this evaluation requires consideration of events that
may occur some years into the future, there
is an element of judgment involved.
Realization of our deferred tax assets is dependent on generating sufficient
taxable income in future periods.
We believe that it is more likely than not that future taxable income will be
sufficient to allow us to recover substantially all of the value assigned to our deferred
tax assets.
However, if future
events cause us to conclude that it is not more likely than not that we will be
able to recover all of the value
assigned to our deferred tax assets, we will be required to adjust our valuation
allowance accordingly.
As of December 26, 2020, we had federal, state, and foreign net operating
loss carryforwards of approximately
$
29.8
million, $
31.6
million and $
200.5
million, respectively. The federal, state and foreign net operating loss
carryforwards will begin to expire in various years from
2024
through
2040
.
The amounts of state and foreign net
operating losses that can be carried forward indefinitely are $
10.6
million and $
199.3
million, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Technology
 
and
Health Care
Value-Added
Distribution
Services
Total
Balance, December 25, 2021
$
3
$
1
$
4
Restructuring and integration costs
124
4
128
Non-cash asset impairment and accelerated depreciation and
amortization of right-of-use lease assets and other long-lived assets
(47)
-
(47)
Non-cash impairment on disposal of a business
(46)
-
(46)
Cash payments and other adjustments
(13)
(2)
(15)
Balance, December 31, 2022
21
3
24
Restructuring and integration costs
72
8
80
Non-cash asset impairment and accelerated depreciation and
amortization of right-of-use lease assets and other long-lived assets
(13)
(2)
(15)
Non-cash impairment on disposal of a business
(12)
-
(12)
Cash payments and other adjustments
(46)
(8)
(54)
Balance, December 30, 2023
$
22
$
1
$
23
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
 
FINANCIAL STATEMENTS
(in thousands,millions, except share and per share data)
108114
The tax provisions differ from the amount computed using the federal statutory income
tax rate as follows:
Years
ended
December 26,
December 28,
December 29,
2020
2019
2018
Income tax provision at federal statutory rate
$
104,977
$
142,865
$
112,735
State income tax provision, net of federal income tax effect
13,015
16,539
15,872
Foreign income tax benefit
(428)
(4,580)
(2,558)
Pass-through noncontrolling interest
(2,681)
(3,931)
(2,700)
Valuation
allowance
659
(79)
2,017
Unrecognized tax benefits and audit settlements
(17,722)
3,671
2,126
Interest expense related to loans
(11,098)
(5,498)
(11,700)
Excess tax benefits related to stock compensation
778
(86)
(1,008)
Transition tax on deemed repatriation of
foreign earnings
0
0
(10,000)
Revaluation of deferred tax assets and liabilities
0
0
(1,676)
Tax on global
intangible low-taxed income ("GILTI")
2,365
3,917
7,599
Tax benefit related
to legal entity reorganization outside the U.S.
(5,823)
0
(13,852)
Tax charge
related to reorganization of legal entities related
to forming Henry Schein One
0
0
3,914
Tax charge
(credit) related to reorganization of legal entities
completed in preparation for the Animal Health spin-off
0
(1,333)
3,135
Other
11,332
8,030
3,528
Total income
tax provision
$
95,374
$
159,515
$
107,432
For the year ended December 26, 2020, our effective tax rate was
19.1
% compared to
23.4
% for the prior year
period.
Our effective tax rate in 2020 was primarily impacted by an Advance Pricing
Agreement (“APA”) with the
U.S Internal Revenue Service (the “IRS”) in the U.S., other audit resolutions,
state and foreign income taxes and
interest expense. The positive effect of the APA and the other audit resolutions are not expected to be recurring and,
as a result, we expect our effective tax rate in future periods to be higher.
In 2019, our effective tax rate of
23.4
% was primarily impacted by state and foreign income taxes and interest
expense.
In 2018, our effective tax rate of
20.0
% was primarily impacted by a reduction in the estimate of our
transition tax associated with the Tax Act, tax charges and credits associated with legal entity reorganizations
outside the U.S., and state and foreign income taxes and interest expense.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act
(“CARES Act”) was enacted in
response to the COVID-19 pandemic.
The CARES Act includes, but is not limited to, certain income tax
provisions that modify the Section 163(j) limitation of business interest and Net
Operating Loss (“NOL”) carryover
and carryback rules.
The modifications to Section 163(j) increase the allowable business
interest deduction from
30
% of adjusted taxable income to
50
% of adjusted taxable income for years beginning in 2019 and 2020.
The
CARES Act eliminated the NOL income limitation for years beginning
before 2021 and it extended the carryback
period to five years for losses incurred in 2018, 2019 and 2020.
We have analyzed the income tax provisions of the
CARES Act and have accounted for the impact in the year ended December 26,
2020, which did not have a
material impact on our consolidated financial statements.
There are certain other non-income tax benefits available
to us under the CARES Act that require further clarification or interpretation
that may affect our consolidated
financial statements in the future.
On December 27, 2020, the Consolidated Appropriations Act was
enacted into
law and extended certain non-income tax benefits under the CARES
Act.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in thousands, except per share data)
109
On July 20, 2020, the IRS issued final regulations related to the Tax Act.
The final regulations concern the global
intangible low-taxed income (“GILTI”) and subpart F income provisions of the Tax Act.
To provide flexibility to
taxpayers, the IRS is permitting the application of these final regulations to
prior tax years, if the taxpayer elects to
do so.
We have analyzed the final regulations, which do not have a material impact to our consolidated financial
statements.
On December 22, 2017, the U.S. government passed the Tax Act.
The Tax Act is comprehensive tax legislation
that implemented complex changes to the U.S. tax code including, but not
limited to, the reduction of the corporate
tax rate from
35
% to
21
%, modification of accelerated depreciation, the repeal of the domestic
manufacturing
deduction and changes to the limitations of the deductibility of interest.
Additionally, the Tax
Act moved from a
global tax regime to a modified territorial regime, which requires U.S. companies
to pay a mandatory one-time
transition tax on historical offshore earnings that have not been repatriated to the U.S.
The transition tax is payable
over eight years.
In the fourth quarter of 2017, we recorded provisional amounts
for any items that could be
reasonably estimated at the time.
This included the one-time transition tax that we estimated to
be $
140.0
million
and a net deferred tax expense of $
3.0
million attributable to the revaluation of deferred taxes due to the lower
enacted federal income tax rate of 21%.
We completed our analysis in the year ended December 29, 2018 and
recorded a net $
10.0
million reduction to the one-time transition tax and an additional $
1.7
million net deferred tax
benefit from the revaluation of deferred
taxes to reflect the new tax rate.
Within our consolidated balance sheets, transition tax of $
9.9
million was included in “Accrued taxes” for 2020 and
2019 and $
74.5
million and $
94.9
million were included in “Other liabilities” for 2020 and 2019, respectively.
The FASB Staff Q&A, Topic
740 No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity
can make an accounting policy election to either recognize deferred
taxes for temporary differences expected to
reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred.
We
elected to recognize the tax on GILTI as a period expense in the period the tax is incurred.
We recorded a current
tax expense for the GILTI provision of $
2.4
million $
3.9
million and $
7.6
million for 2020, 2019, and 2018,
respectively.
Due to the one-time transition tax and the imposition of the GILTI provisions, all previously unremitted earnings
will no longer be subject to U.S. federal income tax; however, there could be U.S. state and/or foreign withholding
taxes upon distribution of such unremitted earnings.
Determination of the amount of unrecognized deferred tax
liability with respect to such earnings is not practicable.
ASC 740 prescribes the accounting for uncertainty in income taxes recognized
in the financial statements in
accordance with other provisions contained within this guidance.
This topic prescribes a recognition threshold and
a measurement attribute for the financial statement recognition and measurement
of tax positions taken or expected
to be taken in a tax return.
For those benefits to be recognized, a tax position must be more likely
than not to be
sustained upon examination by the taxing authorities.
The amount recognized is measured as the largest amount of
benefit that is greater than 50% likely of being realized upon ultimate audit
settlement.
In the normal course of
business, our tax returns are subject to examination by various taxing
authorities.
Such examinations may result in
future tax and interest assessments by these taxing authorities for uncertain
tax positions taken in respect to certain
tax matters.
The total amount of unrecognized tax benefits, which are included in “Other
liabilities” within our consolidated
balance sheets as of December 26, 2020 was approximately $
84.0
million, of which $
70.1
million would affect the
effective tax rate if recognized.
It is possible that the amount of unrecognized tax benefits
may change in the next
12 months, which may result in a material impact on our consolidated statement of
income.
The tax years subject to examination by major tax jurisdictions include
the years 2012 and forward by the IRS, as
well as the years 2008 and forward for certain states and certain foreign
jurisdictions.
All tax returns audited by the
IRS are officially closed through 2011 and 2014 through 2016.
All IRS audit fieldwork has been completed for the
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in thousands, except per share data)
110
years 2012 and 2013.
In the quarter ended December 28, 2019, we reached a settlement with
the U.S. Competent
Authority to resolve certain transfer pricing issues related to 2012 and 2013.
For all remaining outstanding issues
for 2012 and 2013, we have provided all necessary documentation to
the Appellate Division to date and are waiting
for responses.
We do not believe the final resolution will have a material impact to our consolidated financial
statements.
During the quarter ended September 26, 2020 we finalized negotiations
with the Advance Pricing
Division and reached an agreement on an appropriate transfer pricing
methodology for the years 2014-2025.
The
objective of this resolution is to mitigate future transfer pricing audit
adjustments.
In the fourth quarter of 2020, we
reached a favorable resolution with the IRS relating to select audit years.
The total amounts of interest and penalties are classified as a component of
the provision for income taxes.
The
amount of tax interest expense (credit) was approximately $(
3.3
) million, $
2.2
million, and $
3.6
million in 2020,
2019 and 2018, respectively.
The total amount of accrued interest is included in “Other liabilities”, and was
approximately $
14.0
million as of December 26, 2020 and $
18.0
million as of December 28, 2019.
NaN
penalties
were accrued for the periods presented.
The following table provides a reconciliation of unrecognized tax benefits:
December 26,
December 28,
December 29,
2020
2019
2018
Balance, beginning of period
$
91,100
$
77,800
$
83,200
Additions based on current year tax positions
4,900
4,900
5,000
Additions based on prior year tax positions
7,900
17,300
9,400
Reductions based on prior year tax positions
(1,000)
(1,000)
(1,600)
Reductions resulting from settlements with taxing authorities
(18,600)
(4,200)
(1,600)
Reductions resulting from lapse in statutes of limitations
(14,300)
(3,700)
(16,600)
Balance, end of period
$
70,000
$
91,100
$
77,800
Note 15 – Concentrations of Risk
Certain financial instruments potentially subject us to concentrations of credit
risk.
These financial instruments
consist primarily of cash equivalents, trade receivables, long-term investments,
notes receivable and derivative
instruments.
In all cases, our maximum exposure to loss from credit
risk equals the gross fair value of the financial
instruments.
We routinely maintain cash balances at financial institutions in excess of insured amounts. We have
not experienced any loss in such accounts and we manage this risk through
maintaining cash deposits and other
highly liquid investments in high quality financial institutions.
We continuously assess the need for reserves for
such losses, which have been within our expectations.
We do not require collateral or other security to support
financial instruments subject to credit risk, except for long-term notes receivable.
We limit our credit risk with respect to our cash equivalents, short-term and long-term investments and derivative
instruments, by monitoring the credit worthiness of the financial institutions who are
the counter-parties to such
financial instruments.
As a risk management policy, we limit the amount of credit exposure by diversifying and
utilizing numerous investment grade counter-parties.
With respect to our trade receivables, our credit risk is somewhat limited due to a relatively large customer base
and
its dispersion across different types of health care professionals and geographic areas.
For the year ended
December 26, 2020, two customers accounted for slightly more than
3
% of our net sales from continuing
operations.
For the year ended December 28, 2019, one customer accounted
for slightly less than
2
% of our net
sales from continuing operations.
With respect to our sources of supply, our top 10 health care distribution
suppliers from continuing operations and our single largest supplier from continuing
operations accounted for
approximately
30
% and
4
%, respectively, of our aggregate purchases in 2020 and approximately
31
% and
6
%,
respectively, of our aggregate purchases in 2019.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in thousands, except per share data)
111
Our long-term notes receivable primarily represent strategic financing arrangements
with certain industry affiliates
and amounts owed to us from sales of certain businesses.
Generally, these notes are secured by certain assets of the
counterparty; however, in most cases our security is subordinate to other commercial financial institutions.
While
we have exposure to credit loss in the event of non-performance by these counter-parties,
we conduct ongoing
assessments of their financial and operational performance.
Note 16 – DerivativesCommitments and Hedging ActivitiesContingencies
Purchase Commitments
In our health care distribution business, we sometimes enter into long-term purchase
commitments to ensure the
availability of products for distribution.
Future minimum annual payments for inventory purchase commitments
as
of December 30, 2023 were:
 
2024
$
5
2025
4
2026
4
2027
4
2028
-
Thereafter
-
Total minimum
inventory purchase commitment payments
$
17
Employment, Consulting and Non-Compete Agreements
We have employment, consulting and non-compete agreements that have varying base aggregate annual payments
for the years 2024 through 2028 and thereafter of approximately $
21
million, $
8
million, $
1
million, $
1
million, $
0
million, and $
0
million, respectively.
We also have lifetime consulting agreements that provide for current
compensation of four-hundred thousand dollars per year, with small scheduled increases every fifth year with the
next increase in 2027.
In addition, some agreements have provisions for additional
incentives and compensation.
Legal Proceedings
Henry Schein, Inc. has been named as a defendant in multiple opioid related
lawsuits (currently less than one-
hundred and seventy-five (
175
); one or more of Henry Schein, Inc.’s subsidiaries is also named as a defendant in a
number of those cases).
Generally, the lawsuits allege that the manufacturers of prescription opioid drugs engaged
in a false advertising campaign to expand the market for such drugs and
their own market share and that the entities
in the supply chain (including Henry Schein, Inc. and its subsidiaries) reaped
financial rewards by refusing or
otherwise failing to monitor appropriately and restrict the improper distribution
of those drugs.
These actions
consist of some that have been consolidated within the MultiDistrict Litigation
(“MDL”) proceeding In Re National
Prescription Opiate Litigation (MDL No. 2804; Case No. 17-md-2804)
and are currently stayed, and others which
remain pending in state courts and are proceeding independently and outside
of the MDL.
At this time, the
following cases are set for trial: the action filed by DCH Health Care Authority, et al. in Alabama state court, which
is currently set for a jury trial on July 8, 2024; the action filed by Mobile
County Board of Health, et al. in Alabama
state court, which has been set for a jury trial on August 12, 2024;
and the action filed by Florida Health Sciences
Center, Inc. (and
25
other hospitals located throughout the State of Florida) in Florida state court,
which is currently
scheduled for a jury trial in September 2025.
Of Henry Schein’s 2023 net sales of approximately $
12.3
billion,
sales of opioids represented less than four-tenths of 1 percent.
Opioids represent a negligible part of our
business.
We intend to defend ourselves vigorously against these actions.
In August 2022, Henry Schein received a Grand Jury Subpoena from the United
States Attorney’s Office for the
Western District of Virginia,
seeking documents in connection with an investigation of possible
violations of the
Federal Food, Drug & Cosmetic Act by Butler Animal Health Supply, LLC (“Butler”), a former subsidiary of
Henry Schein.
The investigation relates to the sale of veterinary prescription drugs
to certain customers.
In
October 2022, Henry Schein received a second Grand Jury Subpoena
from the United States Attorney’s Office for
the Western District of Virginia.
The October 2022 Subpoena seeks documents relating to payments Henry
Schein
received from Butler or Covetrus, Inc. (“Covetrus”).
Butler was spun off into a separate company and became a
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
115
subsidiary of Covetrus in 2019 and is no longer owned by Henry Schein.
We are exposedcooperating with the
investigation.
On January 18, 2024, a putative class action was filed against the Company
in the U.S. District Court for the
Eastern District of New York (“EDNY”), Case No. 24-cv-387 (the “Cruz-Bermudez Action”), based on the
October 2023 cybersecurity incident described above.
On January 26, 2024, a second putative class action was
filed against the Company based on the cybersecurity incident, also in
the EDNY,
Case No. 24-cv-550 (the
“Depperschmidt Action”).
On February 12, 2024, the Depperschmidt Action was voluntarily dismissed
without
prejudice.
On February 16, 2024, an amended complaint was filed in
the Cruz-Bermudez Action with additional
plaintiffs’ counsel from the Depperschmidt Action and an additional new plaintiff.
Plaintiffs in the Cruz-Bermudez Action seek to market risksrepresent a class of all individuals
whose personally identifying
information and personal health information was compromised by
the incident.
Plaintiffs generally claim to have
been harmed by alleged actions and/or omissions by the Company
in connection with the incident and that the
Company made deceptive public statements regarding privacy and data protection.
Plaintiffs assert a variety of
common law and statutory claims seeking monetary damages, injunctive
relief, costs and attorneys’ fees, and other
related relief.
The case remains pending.
We intend to defend ourselves vigorously against this action.
From time to time, we may become a party to other legal proceedings,
including, without limitation, product
liability claims, employment matters, commercial disputes, governmental
inquiries and investigations (which may
in some cases involve our entering into settlement arrangements or consent
decrees), and other matters arising out
of the ordinary course of our business.
While the results of any legal proceeding cannot be predicted with certainty,
in our opinion none of these other pending matters are currently
anticipated to have a material adverse effect on our
consolidated financial position, liquidity or results of operations.
As of December 30, 2023, we had accrued our best estimate of potential
losses relating to claims that were probable
to result in liability and for which we were able to reasonably estimate
a loss.
This accrued amount, as well as
related expenses, was not material to our financial position, results of operations
or cash flows.
Our method for
determining estimated losses considers currently available
facts, presently enacted laws and regulations and other
factors, including probable recoveries from third parties.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
116
Note 17 – Stock-Based Compensation
Stock-based awards are provided to certain employees under our 2020 Stock Incentive
Plan and to non-employee
directors under our 2023 Non-Employee Director Stock Incentive Plan
(formerly known as the 2015 Non-
Employee Director Stock Incentive Plan) (together, the “Plans”).
The Plans are administered by the Compensation
Committee of the Board (the “Compensation Committee”).
Historically, equity-based awards to our employees
have been granted solely in the form of time-based and performance-based
restricted stock units (“RSUs”) with the
exception of our 2021 plan year in which non-qualified stock options were
issued in place of performance-based
RSUs and in 2022, when we granted time-based and performance-based
RSUs, as well as changes non-qualified stock
options.
For our 2023 plan year, we returned to granting our employees equity-based awards solely
in foreign currency exchange ratesthe form of
time-based and performance-based RSUs.
Our non-employee directors receive equity-based awards solely
in the
form of time-based RSUs.
As of December 30, 2023, there were
70,942,657
shares authorized and
6,773,234
shares available to be granted
under the 2020 Stock Incentive Plan and
2,075,000
shares authorized and
393,309
shares available to be granted
under the 2023 Non-Employee Director Stock Incentive Plan.
RSUs are stock-based awards granted to recipients with specified vesting provisions.
In the case of RSUs, common
stock is delivered on or following satisfaction of vesting conditions.
We issue RSUs to employees that primarily
vest (i) solely based on the recipient’s continued service over time, primarily with
four
-year cliff vesting and/or (ii)
based on achieving specified performance measurements and the recipient’s continued service over time, primarily
with
three
-year cliff vesting.
RSUs granted to our non-employee directors primarily include
12
-month cliff vesting.
For these RSUs, we recognize the cost as compensation expense on a straight-line
basis.
For all RSUs, we estimate the fair value based on our closing stock
price on the grant date.
With respect to
performance-based RSUs, the number of shares that ultimately vest and
are received by the recipient is based upon
our performance as measured against specified targets over a specified period, as
determined by the U.S.Compensation
dollar and each other, and changesCommittee.
Although there is no guarantee that performance targets will be achieved, we
estimate the fair value of
performance-based RSUs based on our closing stock price at time of grant.
Each of the Plans provide for certain adjustments to the credit riskperformance
measurement in connection with awards under
the Plans.
With respect to the performance-based RSUs granted under our 2020 Stock Incentive Plan, such
performance measurement adjustments relate to significant events, including,
without limitation, acquisitions,
divestitures, new business ventures, certain capital transactions (including share
repurchases), differences in
budgeted average outstanding shares (other than those resulting from capital
transactions referred to above),
restructuring costs, if any, certain litigation settlements or payments, if any, changes in accounting principles or in
applicable laws or regulations, changes in income tax rates in certain
markets, foreign exchange fluctuations, the
financial impact either positive or negative, of the derivative counterparties.difference in projected earnings
generated by COVID-19 test kits
(solely with respect to performance-based RSUs granted in the 2022 and
2023 plan years) and impairment charges
(solely with respect to performance-based RSUs granted in the 2023 plan
year), and unforeseen events or
circumstances affecting us.
Over the performance period, the number of RSUs that will ultimately vest
and be issued and the related
compensation expense is adjusted upward or downward based upon our
estimation of achieving such performance
targets.
The ultimate number of shares delivered to recipients and the related compensation
cost recognized as an
expense is based on our actual performance metrics as defined under
the 2020 Stock Incentive Plan.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
117
Stock options are awards that allow the recipient to purchase shares of our
common stock after vesting at a fixed
price set at the time of grant.
Stock options were granted at an exercise price equal to our
closing stock price on the
date of grant.
Stock options issued in 2021 and 2022 vest one-third per year based
on the recipient’s continued
service, subject to the terms and conditions of the 2020 Stock Incentive Plan,
are fully vested
three years
from the
grant date and have a contractual term of
ten years
from the grant date, subject to earlier termination of term and
term acceleration upon certain events.
Compensation expense for stock options is recognized using
a graded
vesting method.
 
We attemptestimate grant date fair value of stock options using the Black-Scholes valuation model.
During the year ended December 30, 2023, we did
no
t grant any stock options.
In addition to minimize these
risks by primarily using foreign currency forward contracts and byequity-based awards granted in fiscal 2021 under the long-term
 
maintaining counter-party credit limits.incentive program, the Compensation
Committee granted a Special Pandemic Recognition Award under the 2020 Stock Incentive Plan to recipients of
performance-based RSUs under the 2018 long-term incentive program.
The payout under the performance-based
restricted stock units granted under the fiscal 2018 long-term incentive program
(the “2018 LTIP”) was negatively
impacted by the global COVID-19 pandemic.
Given the significance of the impact of the pandemic on our
three
-
year EPS goal under such equity awards and the contributions made by our
employees (including those who
received such awards), on March 3, 2021, the Compensation Committee granted
a Special Pandemic Recognition
Award to recipients of performance-based restricted stock units under the 2018 LTIP who were employed by us on
the grant date of the Special Pandemic Recognition Award.
 
These time-based RSU awards vested
hedging activities provide only limited protection against currency exchange50
% on the first
anniversary of the grant date and
50
% on the second anniversary of the grant date, based on the recipient’s
continued service and subject to the terms and conditions of the 2020 Stock Incentive
Plan, and were recorded as
compensation expense using a graded vesting method.
The combination of the
20
% payout based on actual
performance of the 2018 LTIP and the one-time Special Pandemic Recognition Award granted in 2021 generated a
cumulative payout of
75
% of each recipient’s original number of performance-based restricted stock units awarded
in 2018 if the recipient satisfied the
two
-year vesting schedule commencing on the grant date.
Our consolidated statements of income reflect pre-tax share-based compensation
expense of $
39
million, $
54
million and $
78
million for the years ended December 30, 2023, December 31, 2022
 
and credit risks.December 25, 2021.
Total unrecognized compensation cost related to unvested awards as of December 30, 2023 was $
65
 
Factorsmillion, which
is expected to be recognized over a weighted-average period of approximately
2.6
years.
The weighted-average grant date fair value of stock-based awards granted
was $
76.43
, $
85.51
and $
62.72
per share
during the years ended December 30, 2023, December 31, 2022 and December
25, 2021.
Certain stock-based compensation is required to be settled in cash.
During the year ended December 30, 2023, we
recorded a liability of $
0.1
million for stock-based compensation to be settled in cash.
We
record deferred income tax assets for awards that could
influence the effectiveness of our hedging programs include currency markets andwill result in
 
availabilityfuture income tax deductions based on the
amount of hedging
instrumentscompensation cost recognized and liquidity ofour statutory tax rate in the credit markets.
 
All foreign currency forward contracts thatjurisdiction in which we enter into arewill receive a
componentsdeduction.
Our consolidated statements of hedging programscash flows present our stock-based compensation
expense as a reconciling
adjustment between net income and are entered intonet cash provided by operating
activities for all periods presented.
There were
no cash benefits associated with tax deductions in excess of recognized
compensation for the sole purposeyears ended
December 30, 2023, December 31, 2022 and December 25, 2021.
 
of hedging an existing or anticipated
currency exposure.
We do not enter into such contracts for speculative purposes and we manage our credit risks by
diversifying our counterparties, maintaining a strong balance sheet and having
multiple sources of capital.
 
During 2019 we entered into foreign currency forward contracts to hedge a portion
Table of our euro-denominatedContents
foreign operations which are designated as net investment hedges.HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
118
The following weighted-average assumptions were used in determining
the most recent fair values of stock options
using the Black-Scholes valuation model:
 
These net investment hedges offset the change
2022
2021
Expected dividend yield
-
%
-
%
Expected stock price volatility
27.80
%
27.10
%
Risk-free interest rate
3.62
%
1.33
%
Expected life of options (in years)
6.00
6.00
We have not declared cash dividends on our stock in the U.S dollar valuepast and we do not anticipate declaring cash dividends in
the foreseeable future.
The expected stock price volatility is based on implied volatilities
from traded options on
our stock, historical volatility of our investmentstock and other factors.
The risk-free interest rate is based on the U.S.
Treasury yield curve in certain euro-functional currency subsidiaries dueeffect at the time of grant that most closely aligns to fluctuating foreignthe expected life of options.
The six-
exchange rates.year expected life of the options was determined using the simplified
method for estimating the expected term as
permitted under Staff Accounting Bulletin Topic 14.
The following table summarizes the stock option activity for the year
ended December 30, 2023:
Stock Options
Weighted Average
Aggregate
Weighted Average
Remaining Contractual
Intrinsic
Shares
Exercise Price
Life (in years)
Value
Outstanding at beginning of year
1,117,574
$
71.38
Granted
-
-
Exercised
(23,498)
62.74
Forfeited
(15,617)
79.04
Outstanding at end of year
1,078,459
$
71.46
7.6
$
9
Options exercisable at end of year
573,459
$
68.43
Weighted Average
Aggregate
Number of
Weighted Average
Remaining Contractual
Intrinsic
Options
Exercise Price
Life (in years)
Value
Vested
or expected to vest
503,497
$
74.95
7.7
$
3
The following tables summarize the activity of our unvested RSUs for
the year ended December 30, 2023:
Time-Based Restricted Stock Units
Performance-Based Restricted Stock Units
Weighted Average
Weighted Average
Grant Date Fair
Intrinsic Value
Grant Date Fair
Intrinsic Value
Shares/Units
Value Per Share
Per Share
Shares/Units
Value Per Share
Per Share
Outstanding at beginning of period
1,756,044
$
66.59
520,916
$
60.23
Granted
426,021
77.50
381,571
81.00
Vested
(433,973)
61.96
(631,458)
60.65
Forfeited
(92,699)
72.37
(62,287)
77.45
Outstanding at end of period
1,655,393
$
70.34
$
75.71
208,742
$
78.02
$
75.71
The total intrinsic value per share of RSUs that vested was $
76.85
, $
78.74
 
Gains and losses related$
73.99
during the years ended
December 30, 2023, December 31, 2022 and December 25, 2021, respectively.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
119
Note 18 – Employee Benefit Plans
Defined benefit plans
Certain of our employees in our international markets participate
in various noncontributory defined benefit plans.
These plans are managed to provide pension benefits to covered employees
in accordance with local regulations
and practices.
Our net unfunded liability for these net investment hedgesplans are recorded
 
in
Accumulated accrued expenses: other; and other
comprehensive loss
liabilities within our consolidated balance sheets.
 
Amounts excluded fromThe following table presents the assessment of hedge
effectiveness are included in interest expense within our consolidated statements
of income.
The aggregate
notional value of this net investment hedge, which matures on
November 16, 2023
, is approximately €
200
million.
During the years ended December 26, 2020 and December 28, 2019 we
recognized approximately $
4.7
million and
$
0.6
million, respectively, of interest savings as a result of this net investment hedge.
On
March 20, 2020
,
we entered into a total return swap for the purpose of economically hedging our unfunded non-
qualified SERP and DCP. This swap will offset changes in our SERP and DCP liabilities.projected benefit
At the inception, the
notional value of the investments in these plans was $
43.4
million.
At December 26, 2020, the notional value of
the investments in these plans was $
67.6
million.
At December 26, 2020, the financing rate for this swap is based
on LIBOR of
0.15
% plus
0.38
%, for a combined rate of
0.53
%.
From March 20, 2020, the effective date of the
swap, to December 26, 2020, we have recorded a gain, within the selling,
general and administrative line item in
our consolidated statement of income, of approximately $
21.2
million, net of transaction costs, related to this
undesignated swap for the year ended December 26, 2020.
This gain was partially offset by the change in fair
value adjustment of $
10.6
million in the SERPobligations, plan assets, and the DCP, which occurred prior to the inceptionfunded status of the swap on
March 20, 2020.our defined benefit
 
This swap is expected to be renewed on an annual basis and
pension plans:
is expected to result in a neutral
impact to our results of operations.
 
See
for additional information.
Fluctuations in the value of certain foreign currencies as compared
to the U.S. dollar may positively or negatively
affect our revenues, gross margins, operating expenses and retained earnings, all of which are expressed
in U.S.
dollars.
Where we deem it prudent, we engage in hedging programs using primarily
foreign currency forward
contracts aimed at limiting the impact of foreign currency exchange
rate fluctuations on earnings.
We purchase
short-term (i.e., generally
18 months
or less) foreign currency forward contracts to protect against
currency
exchange risks associated with intercompany loans due from our international
subsidiaries and the payment of
merchandise purchases to our foreign suppliers.
We do not hedge the translation of foreign currency profits into
U.S. dollars, as we regard this as an accounting exposure, not an
economic exposure.
Our hedging activities have
historically not had a material impact on our consolidated financial statements.
Accordingly, additional disclosures
related to derivatives and hedging activities required by ASC 815 have
been omitted.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Years
 
Ended
December 30,
December 31,
2023
2022
Obligation and funded status:
Change in benefit obligation
Projected benefit obligation, beginning of period
$
108
$
128
Service costs
3
3
Interest cost
3
1
Past service cost
1
-
Actuarial gain (loss)
6
(19)
Benefits paid
 
(1)
-
(1)
Participant contributions
1
1
Settlements
(3)
(1)
Effect of foreign currency translation
6
(4)
Projected benefit obligation, end of period
$
125
$
108
Change in plan assets
Fair value of plan assets at beginning of period
$
73
$
75
Actual return on plan assets
4
(3)
Employer contributions
2
2
Plan participant contributions
1
1
Expected return on plan assets
1
1
Benefit received
 
(1)
2
-
Settlements
(2)
(1)
Effect of foreign currency translation
5
(2)
Fair value of plan assets at end of period
$
86
$
73
Unfunded status at end of period
$
39
$
35
(1)
Includes regular benefit payments and amounts transferred in by new
 
participants.
The majority of our defined benefit plans are unfunded, with the exception
 
of one plan in one country where the
amount of assets exceeds the projected benefit obligation by approximately
 
$
7
 
million and $
6
 
million as of
December 30, 2023 and December 31, 2022, respectively.
 
 
 
 
 
 
 
Table of Contents
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
 
FINANCIAL STATEMENTS
(in thousands,millions, except share and per share data)
112
Note 17 – Revenue from Contracts with Customers
120
Revenue (Net sales) is recognized in accordance with the policies discussed
in
Note 1 – Significant Accounting
Policies
.
Disaggregation of Net sales
The following table disaggregatesprovides the amounts recognized in our Net sales by reportable segment andconsolidated
 
geographic area:balance sheets for our defined benefit
pension plans:
Year
Ended
December 26, 2020
North America
International
Global
Revenues:
Health care distribution
Dental
$
3,471,521
2,441,072
5,912,593
Medical
3,514,670
102,347
3,617,017
Total health care distribution
6,986,191
2,543,419
9,529,610
Technology
and value-added services
446,830
67,428
514,258
Total excluding
Corporate TSA revenues
(1)
7,433,021
2,610,847
10,043,868
Corporate TSA revenues
(1)
0
75,273
75,273
Total revenues
$
7,433,021
$
2,686,120
$
10,119,141
Year
Ended
December 28, 2019
North America
International
Global
Revenues:
Health care distribution
Dental
$
3,911,746
2,504,119
6,415,865
Medical
2,894,137
79,449
2,973,586
Total health care distribution
6,805,883
2,583,568
9,389,451
Technology
and value-added services
445,317
69,768
515,085
Total excluding
Corporate TSA revenues
(1)
7,251,200
2,653,336
9,904,536
Corporate TSA revenues
(1)
4,098
77,169
81,267
Total revenues
$
7,255,298
$
2,730,505
$
9,985,803
(1)
Corporate TSA revenues represents sales of certain animal health products to Covetrus under the transition services agreement
entered into in connection with the Animal Health Spin-off, which ended in December 2020.
 
 
 
 
 
 
 
 
 
 
Years
 
Ended
December 30,
December 31,
2023
2022
Non-current assets
$
27
$
25
Current liabilities
(1)
(1)
Non-current liabilities
(65)
(59)
Accumulated other comprehensive loss, pre-tax
8
4
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in thousands, except per share data)
113
Note 18 – Segment and Geographic Data
We conduct our business through
2
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.
The health care distribution reportable segment aggregates our global dental
and medical operating segments.
This
segment distributes consumable products, small equipment, laboratory products,
large equipment, equipment repair
services, branded and generic pharmaceuticals, vaccines, surgical products, diagnostic
tests, infection-control
products and vitamins.
Our global dental group serves office-based dental practitioners, dental laboratories, schools
and other institutions.
Our global medical group serves office-based medical practitioners, ambulatory
surgery
centers, other alternate-care settings and other institutions.
Our global dental and medical groups serve
practitioners in
31
countries worldwide.
Our global technology and value-added services group provides software,
technology and other value-added
services to health care practitioners.
Our technology group offerings include practice management software
systems for dental and medical practitioners.
Our value-added practice solutions include financial services on a
non-recourse basis, e-services, practice technology, network and hardware services, as well as continuing education
services for practitioners.
The following tables present information abouttable provides the components of net periodic pension cost
for our reportable and operating
defined benefit plans:
segments:
 
Years
Ended
December 26,
December 28,
December 29,
2020
2019
2018
Net Sales:
Health care distribution
(1)
Dental
$
5,912,593
$
6,415,865
$
6,347,998
Medical
3,617,017
2,973,586
2,661,166
Total health care distribution
9,529,610
9,389,451
9,009,164
Technology
and value-added services
(2)
514,258
515,085
408,439
Total excluding
Corporate TSA revenues
10,043,868
9,904,536
9,417,603
Corporate TSA revenues
(3)
75,273
81,267
0
Total
$
10,119,141
$
9,985,803
$
9,417,603
(1)
Consists of consumable products, small equipment, laboratory products, large equipment, equipment repair services, branded and
generic pharmaceuticals, vaccines, surgical products, diagnostic tests, infection-control products, personal protective equipment and
vitamins.
(2)
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.
(3)
Corporate TSA revenues represents sales of certain products to Covetrus under the transition services agreement entered into in
connection with the Animal Health Spin-off, which ended in December 2020.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Years
 
Ended
December 30,
December 31,
December 25,
2023
2022
2021
Service cost
$
3
$
3
$
4
Interest cost
3
1
-
Expected return on plan assets
(3)
(1)
(1)
Employee contributions
(1)
-
-
Amortization of prior service credit
-
1
1
Recognized net actuarial loss
-
-
-
Settlements
-
-
-
Net periodic pension cost
$
2
$
4
$
4
The following tables present the weighted-average actuarial assumptions
used to determine our pension benefit
obligation and our net periodic pension cost for the periods presented:
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in thousands, except per share data)
114
Years
 
endedEnded
December 26,30,
December 28,31,
December 29,Pension Benefit Obligation
20202023
20192022
2018
Operating Income:
Health care distributionWeighted average
 
discount rate
$2.71
436,173%
$1.67
591,404
$
490,988
Technology
and value-added services
99,130
126,857
109,631
Total
$
535,303
$
718,261
$
600,619
Income from continuing operations before
taxes
and equity in earnings of affiliates:
Health care distribution
$
400,343
$
553,181
$
429,429
Technology
and value-added services
99,552
127,126
107,407
Total
$
499,895
$
680,307
$
536,836
Depreciation and Amortization:
Health care distribution
$
142,712
$
146,960
$
122,767
Technology
and value-added services
42,826
37,982
20,863
Total
$
185,538
$
184,942
$
143,630
Interest Income:
Health care distribution
$
9,736
$
15,352
$
15,106
Technology
and value-added services
106
405
385
Total
$
9,842
$
15,757
$
15,491
Interest Expense:
Health care distribution
$
41,307
$
50,666
$
76,006
Technology
and value-added services
70
126
10
Total
$
41,377
$
50,792
$
76,016
Income Tax
Expense:
Health care distribution
$
71,206
$
129,381
$
53,660
Technology
and value-added services
24,168
30,134
53,772
Total
$
95,374
$
159,515
$
107,432
Purchases of Fixed Assets:
Health care distribution
$
43,511
$
69,095
$
68,577
Technology
and value-added services
5,318
7,124
2,706
Total
$
48,829
$
76,219
$
71,283
As of
December 26,
December 28,
December 29,
2020
2019
2018
Total
Assets:
Health care distribution
$
6,503,089
$
5,821,468
$
5,288,662
Technology
and value-added services
1,269,443
1,329,633
995,192
Discontinued operations
0
0
2,216,673
Total
$
7,772,532
$
7,151,101
$
8,500,527%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Years
Ended
December 30,
December 31,
December 25,
Net Periodic Pension Cost
2023
2022
2021
Discount rate-pension benefit
1.50
%
1.25
%
0.56
%
Expected return on plan assets
0.51
%
0.81
%
0.71
%
Rate of compensation increase
1.64
%
1.68
%
1.95
%
Pension increase rate
0.80
%
0.61
%
0.72
%
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
121
The following table presents the estimated pension benefit payments that
are payable to the plan’s participants as of
December 30, 2023:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Year
2024
$
7
2025
6
2026
7
2027
7
2028
8
2029 to 2033
44
Total
$
79
401(k) Plans
We offer
qualified 401(k) plans to substantially all domestic full-time employees.
As determined by our Board,
matching contributions to these plans generally do not exceed
100
% of the participants’ contributions up to
7
% of
their base compensation, subject to applicable legal limits.
Matching contributions are made in cash and are
allocated consistent with the participants’ investment elections on file, subject
to a
20
% allocation limit to the
Henry Schein Stock Fund.
Forfeitures attributable to participants whose employment terminates
prior to becoming
fully vested are reallocated as part of our ongoing matching contributions
and to offset administrative expenses of
the 401(k) plans.
Assets of the 401(k) and other defined contribution plans are held
in self-directed accounts enabling participants to
choose from various investment fund options.
Matching contributions related to these plans charged to operations
during the years ended December 30, 2023, December 31, 2022 and December
25, 2021 amounted to $
50
million,
$
45
million and $
38
million, respectively.
Within our consolidated statements of income, $
42
million, $
37
million,
and $
30
million, is included in selling, general and administrative; and $
8
million, $
8
million, and $
8
million is
included in cost of goods sold for the years ended December 30, 2023, December
31, 2022, and December 25,
2021, respectively.
Supplemental Executive Retirement Plan
We offer
an unfunded, non-qualified SERP to eligible employees.
This plan generally covers officers and certain
highly compensated employees after they have reached the maximum
IRS allowed pre-tax 401(k) contribution
limit.
Our contributions to this plan are equal to the 401(k) employee-elected
contribution percentage applied to
base compensation for the portion of the year in which such employees are
not eligible to make pre-tax
contributions to the 401(k) plan.
The amounts charged to operations during the years ended December 30, 2023,
December 31, 2022 and December 25, 2021 amounted to $
3
million, $
(1)
million and $
2
million, respectively.
The
charges are included in selling, general and administrative within our consolidated
statements of income.
Please
see
for additional information.
Deferred Compensation Plan
During 2011, we began to offer DCP to a select group of management or highly compensated employees of
the
Company and certain subsidiaries.
This plan allows for the elective deferral of base salary, bonus and/or
commission compensation by eligible employees.
The amounts (credited)/charged to operations during the years
ended December 30, 2023, December 31, 2022 and December 25, 2021
were approximately $
12
million, $
(11)
million and $
8
million, respectively.
The charges are included in selling, general and administrative within our
consolidated statements of income.
Please see
for additional
information.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
 
FINANCIAL STATEMENTS
(in thousands,millions, except share and per share data)
115122
The following table presents information about our operations by geographic
area as of and for the three years
ended December 26, 2020.
Net sales by geographic area are based on the respective locations
of our subsidiaries.
No country, except for the United States, generated net sales greater than
10
% of consolidated net sales.
There
were no material amounts of sales or transfers among geographic areas
and there were no material amounts of
export sales.
2020
2019
2018
Net Sales
Long-Lived
Assets
Net Sales
Long-Lived
Assets
Net Sales
Long-Lived
Assets
United States
$
7,090,206
$
2,362,823
$
6,876,194
$
2,400,733
$
6,411,558
$
1,753,697
Other
3,028,935
1,251,849
3,109,609
1,195,947
3,006,045
1,017,584
Consolidated total
$
10,119,141
$
3,614,672
$
9,985,803
$
3,596,680
$
9,417,603
$
2,771,281
Note 19 – Employee Benefit Plans
Stock-based Compensation
Our accompanying consolidated statements of income reflect pre-tax share-based
compensation expense of $
8.8Redeemable Noncontrolling Interests
million ($
7.1
Some minority stockholders in certain of our subsidiaries have the right,
 
million after-tax)at certain times, to require us to acquire
their ownership interest in those entities at fair value.
ASC Topic 480-10 is applicable for noncontrolling interests
where we are or may be required to purchase all or a portion of the year ended December 26, 2020, and pre-tax share-based
 
expense of $outstanding interest in a consolidated subsidiary
44.9
million ($
34.4
million after-tax) and $
32.6
million ($
25.3
million after-tax) forfrom the years ended December 28, 2019
and December 29, 2018.
Our accompanying consolidated statements of cash flows present our
stock-based compensation expense as an
adjustment to reconcile net income to net cash provided by operating
activities for all periods presented.
In the
accompanying consolidated statements of cash flows, there were
0
benefits associated with tax deductions in
excess of recognized compensation as a cash inflow from financing
activities for the years ended December 26,
2020, December 28, 2019 and December 29, 2018.
Stock-based compensation represents the cost related to stock-based awards granted
to employees and non-
employee directors.
We measure stock-based compensation at the grant date, based on the estimated fair value of
the award, and recognize the cost (net of estimated forfeitures) as compensation
expense on a straight-line basis
over the requisite service period.
Our stock-based compensation expense is reflected in selling, general
and
administrative expenses in our consolidated statements of income.
Stock-based awards are provided to certain employees and non-employee directors
noncontrolling interest holder under the terms of our 2020
Stock Incentive Plan (formerly known as the 2013 Stock Incentive Plan),a put option contained
 
and our 2015 Non-Employee Director
Stock Incentive Plan (together, the “Plans”).in contractual agreements.
 
The Plans are administered by
components of the Compensation Committee of
the
Board of Directors.
Equity-based awards are granted solelychange in the form of restrictedredeemable noncontrolling interests for the
 
stock units, withyears ended December 30, 2023,
December 31, 2022 and December 25, 2021, are presented in the exceptionfollowing table:
of providing stock options to employees pursuant to certain pre-existing
contractual obligations.
As of December
26, 2020, there were
65,243
shares authorized and
5,812
 
shares available to be granted under the 2020 Stock
Incentive Plan and
1,893
shares authorized and
265
shares available to be granted under the 2015 Non-Employee
Director Stock Incentive Plan.
 
 
 
Grants
December 30,
December 31,
December 25,
2023
2022
2021
Balance, beginning of restricted stock units are stock-based awards grantedperiod
$
576
$
613
$
328
Decrease in redeemable noncontrolling interests due to recipients withacquisitions of
noncontrolling interests in subsidiaries
(19)
(31)
(60)
Increase in redeemable noncontrolling interests due to business
acquisitions
326
4
189
Net income attributable to redeemable noncontrolling interests
6
21
23
Distributions declared, net of capital contributions
(19)
(21)
(21)
Effect of foreign currency translation gain (loss)
 
specified vesting provisions.attributable to
redeemable noncontrolling interests
5
(6)
(6)
Change in fair value of redeemable securities
 
In
the case(11)
(4)
160
Balance, end of restricted stock units, common stock is generally delivered
on or following satisfaction of vestingperiod
conditions.
We issue restricted stock units that vest solely based on the recipient’s continued service over time$
(primarily four year cliff vesting, except for grants made under the 2015 Non-Employee
Director Stock Incentive864
Plan, which are primarily$
12 month576
cliff vesting) and restricted stock units that vest based on our achieving$
specified performance measurements and the recipient’s continued service over time (primarily three year cliff613
vesting).
Note 20 – Comprehensive Income
Comprehensive income includes certain gains and losses that, under U.S.
GAAP,
are excluded from net income and
are recorded directly to stockholders’ equity.
The following table summarizes our Accumulated other comprehensive loss, net
of applicable taxes as of:
December 30,
December 31,
December 25,
2023
2022
2021
Attributable to redeemable noncontrolling interests:
Foreign currency translation adjustment
$
(32)
$
(37)
$
(31)
Attributable to noncontrolling interests:
Foreign currency translation adjustment
$
(1)
$
(1)
$
-
Attributable to Henry Schein, Inc.:
Foreign currency translation adjustment
$
(188)
$
(236)
$
(155)
Unrealized gain (loss) from hedging activities
(13)
5
(2)
Pension adjustment loss
(5)
(2)
(14)
Accumulated other comprehensive loss
$
(206)
$
(233)
$
(171)
Total Accumulated
other comprehensive loss
$
(239)
$
(271)
$
(202)
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
 
FINANCIAL STATEMENTS
(in thousands,millions, except share and per share data)
116123
With respect to time-based restricted stock units, we estimate
The following table summarizes the fair value on the datecomponents of grant based oncomprehensive income, net
 
our
closing stock price.
With respect to performance-based restricted stock units, the number of shares that ultimately
vest and are received by the recipient is based upon our performanceapplicable taxes as measured
follows:
against specified targets over a
specified period, as determined by the Compensation Committee of
the Board of Directors.
Although there is no
guarantee that performance targets will be achieved, we estimate the fair value of
performance-based restricted
stock units based on our closing stock price at time of grant.
The Plans provide for adjustments to the performance-based restricted
stock units targets for significant events,
including, without limitation, acquisitions, divestitures, new business ventures,
certain capital transactions
(including share repurchases), restructuring costs, if any, certain litigation settlements or payments, if any, changes
in tax rates in certain countries, changes in accounting principles or
in applicable laws or regulations and foreign
exchange fluctuations.
Over the performance period, the number of shares of common
stock that will ultimately
vest and be issued and the related compensation expense is adjusted upward
or downward based upon our
estimation of achieving such performance targets.
The ultimate number of shares delivered to recipients
and the
related compensation cost recognized as an expense will be based on our
actual performance metrics as defined
under the Plans.
As a result of the Separation, the number of our unvested (as of the
date of the Separation) equity-based awards
from previous grants made under our Long-term Incentive Program under the
Plans was increased by a factor of
approximately
1.2633
, along with a corresponding
decrease
in our price per share.
We record deferred income tax assets for awards that will result in future deductions on our income tax returns
based on the amount of compensation cost recognized and our statutory tax
rate in the jurisdiction in which we will
receive a deduction.
Stock-based compensation grants for the three years ended December 26,
2020 consisted of restricted stock/unit
grants.
Certain stock-based compensation granted may require us
to settle in the form of a cash payment.
During
the year ended December 26, 2020, we recorded a liability of $
0.8
million relating to the grant date fair value of
stock-based compensation to be settled in cash.
The weighted-average grant date fair value of stock-based awards
granted before forfeitures was $
60.23
, $
56.83
and $
71.38
per share during the years ended December 26, 2020,
December 28, 2019 and December 29, 2018.
Total unrecognized compensation cost related to non-vested awards as of December 26, 2020 was $
42.2
million,
which is expected to be recognized over a weighted-average period of
approximately
2.3
years.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in thousands, except per share data)
117
A summary of the stock option activity under the Plans is presented below:
Years
EndedDecember 30,
December 26,31,
December 28,25,
December 29,2023
20202022
20192021
2018
Weighted
Weighted
Weighted
Average
Average
Average
Exercise
Exercise
Exercise
Shares
Price
Shares
Price
Shares
Price
Outstanding at beginning of year
0Net income
$
0
3436
$
13.63
155566
$
29.65660
Granted
Foreign currency translation gain (loss)
053
0(88)
0(84)
0Tax effect
0-
0-
Exercised
-
0Foreign currency translation gain (loss)
053
(88)
(84)
Unrealized gain (loss) from hedging activities
(25)
10
12
Tax effect
7
(3)
13.63(3)
(152)Unrealized gain (loss) from hedging activities
29.81(18)
Forfeited
7
09
0Pension adjustment gain (loss)
0(3)
016
08
0Tax effect
Outstanding at end of year
-
0(4)
(2)
Pension adjustment gain (loss)
(3)
12
6
Comprehensive income
$
0
0468
$
0
3497
$
17.22591
Options exercisable at end of year
0
$
0
0
$
0
3
$
17.22
The following table representsOur financial statements are denominated in U.S. Dollars.
Fluctuations in the intrinsic values of:
value of foreign currencies as
As of
December 26,
December 28,
December 29,
2020
2019
2018
Stock options outstandingcompared to the U.S. Dollar may have a significant impact on our
 
$
0
$
0
$
121
Stock options exercisable
0
0
121
The total cash received as a result of stock option exercises for the year ended
December 29, 2018 was
approximately $
3.1
million.
In connection with these exercises, we did
0
t realize any tax benefits for the years
ended December 26, 2020, December 28, 2019 and December 29, 2018.
We settle employee stock option exercises
with newly issued common shares.
The total intrinsic value per share of restricted stock/units that vested
was $
61.49
, $
64.31
and $
76.48
during the
years ended December 26, 2020, December 28, 2019 and December
29, 2018.comprehensive income.
 
The following table summarizes theforeign currency
status of our non-vested restricted stock/units for the year ended December
26, 2020:
Time-Based Restricted Stock/Units
Weighted Average
Grant Date Fair
Intrinsic Value
Shares/Units
Value Per Share
Per Share
Outstanding at beginning of period
1,417
$
58.72
Granted
391
60.19
Vested
(298)
65.91
Forfeited
(51)
59.71
Outstanding at end of period
1,459
$
57.61
$
65.83
Performance-Based Restricted Stock/Units
Weighted Average
Grant Date Fair
Intrinsic Value
Shares/Units
Value Per Share
Per Share
Outstanding at beginning of period
1,459
$
61.41
Granted
(954)
56.52
Vested
(327)
67.48
Forfeited
(42)
57.82
Outstanding at end of period
136
$
53.52
$
65.83
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in thousands, except per share data)
118
401(k) Plans
We offer
qualified 401(k) plans to substantially all our domestic full-time employees.
As determined by our Board
of Directors, matching contributions to these plans generally do not
exceed
100
% of the participants’ contributions
up to
7
% of their base compensation, subject to applicable legal limits.
Matching contributions consist of cash and
were allocated entirely to the participants’ investment elections on file,
subject to a
20
% allocation limit to the
Henry Schein Stock Fund.
Due to the impact of COVID-19, as part of our initiative to generate cash savings,
we
suspended the matching contribution for the second half of 2020.
Forfeitures attributable to participants whose
employment terminates prior to becoming fully vested are used to
reduce our matching contributions and offset
administrative expenses of the 401(k) plans.
Assets of the 401(k) and other defined contribution plans are held
in self-directed accounts enabling participants to
choose from various investment fund options.
Matching contributions related to these plans charged to operations
translation gain (loss) during the years ended December 26, 2020,30, 2023, December 28, 201931,
2022 and December 25, 2021 was
29, 2018 amountedprimarily due to $
19.9
million,
$
34.9
million and $
35.0
million, respectively.
Supplemental Executive Retirement Plan
We offer
an unfunded, non-qualified SERP to eligible employees.
This plan generally covers officers and certain
highly compensated employees after they have reached the maximum
IRS allowed pre-tax 401(k) contribution
limit.
Our contributions to this plan are equal to the 401(k) employee-elected
contribution percentage applied to
base compensation for the portionchanges in foreign currency exchange rates of the year in which such employees areEuro,
 
not eligible to make pre-taxBrazilian Real, British Pound, Swiss
contributions to the 401(k) plan.Franc, and Canadian Dollar.
 
Due to the impact of COVID-19, as part of our initiative to
generate cash savings,
we suspended contributions under the SERP for the second half of
2020.
The amounts charged to operationshedging gain (loss) during
the years ended December 26, 2020,30, 2023 , December 28, 2019
31, 2022, and December 25, 2021
29, 2018 amountedwas attributable to $a net investment hedge.
2.8
million, $
4.0
million and $
0.4
million, respectively.
 
Please seeSee
Note 1611 – Derivatives and Hedging Activities
 
for additionalfurther
information.
Deferred Compensation Plan
During 2011, we began to offer DCP to a select group of management or highly compensated employeesThe following table summarizes our total comprehensive income, net of
 
theapplicable taxes as follows:
Company and certain subsidiaries.
This plan allows for the elective deferral of base salary, bonus and/or
commission compensation by eligible employees.
The amounts charged (credited) to operations during the years
ended December 26, 2020, December 28, 2019 and December 29, 2018 were
approximately $
7.8
million, $
8.3
million and $
(2.3)
million, respectively.
Please see
Note 16 – Derivatives and Hedging Activities
for additional
information.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in thousands, except per share data)
119
Note 20 – Commitments and Contingencies
Purchase Commitments
In our health care distribution business, we sometimes enter into long-term purchase
commitments to ensure the
availability of products for distribution.
Future minimum annual payments for inventory purchase commitments
as
of December 26, 2020 were:
2021
$
208,200
2022
110,800
2023
0
2024
0
2025
0
Thereafter
0
Total minimum
inventory purchase commitment payments
$
319,000
Employment, Consulting and Non-Compete Agreements
We have definite-lived employment, consulting and non-compete agreements that have varying base aggregate
annual payments for the years 2021 through 2025 and thereafter of approximately
$
16.9
million, $
6.8
million, $
1.0
million, $
0.9
million, $
0.9
million, and $
0.9
million, respectively.
We also have lifetime consulting agreements
that provide for current compensation of $
0.4
million per year, increasing $
25
every fifth year with the next
increase in 2022.
In addition, some agreements have provisions for additional
incentives and compensation.
 
Litigation
On
August 31, 2012
,
Archer and White Sales, Inc. (“Archer”)
filed a complaint against
Henry Schein, Inc. as well
as Danaher Corporation and its subsidiaries Instrumentarium Dental, Inc., Dental Equipment, LLC, Kavo Dental
Technologies, LLC and Dental Imaging Technologies Corporation (collectively, the “Danaher Defendants”)
in the
U.S. District Court for the Eastern District of Texas, Civil Action No. 2:12-CV-00572-JRG, styled as an antitrust
action under Section 1 of the Sherman Act, and the Texas Free Enterprise Antitrust Act.
Archer alleges a
conspiracy between Henry Schein, an unnamed company and the Danaher Defendants to terminate or limit
Archer’s distribution rights
.
On
August 1, 2017
,
Archer
filed an amended complaint, adding
Patterson Companies,
Inc. (“Patterson”) and Benco Dental Supply Co. (“Benco”)
as defendants, and
alleging that Henry Schein,
Patterson, Benco and Burkhart Dental Supply conspired to fix prices and refused to compete with each other for
sales of dental equipment to dental professionals and agreed to enlist their common suppliers, the Danaher
Defendants, to join a price-fixing conspiracy and boycott by reducing the distribution territory of, and eventually
terminating, their price-cutting competing distributor Archer.
Archer seeks damages in an amount to be proved at
trial, to be trebled with interest and costs, including attorneys’ fees, jointly and severally, as well as injunctive
relief.
On
October 30, 2017
,
Archer
filed a second amended complaint,
to add additional allegations that it believes
support its claims. The named parties and causes of action are the same as the August 1, 2017 amended complaint.
On October 1, 2012, we filed a motion for an order: (i) compelling Archer
to arbitrate its claims against us; (2)
staying all proceedings pending arbitration; and (3) joining the Danaher
Defendants’ motion to arbitrate and stay.
On May 28, 2013, the Magistrate Judge granted the motions to arbitrate
and stayed proceedings pending arbitration.
On June 10, 2013, Archer moved for reconsideration before the District Court
judge.
On December 7, 2016, the
District Court Judge granted Archer’s motion for reconsideration and lifted the stay.
Defendants appealed the
District Court’s order.
On December 21, 2017, the U.S. Court of Appeals for the Fifth Circuit
affirmed the District
Court’s order denying the motions to compel arbitration.
On June 25, 2018, the Supreme Court of the United States
granted defendants’ petition for writ of certiorari.
On October 29, 2018, the Supreme Court heard oral arguments.
On January 8, 2019, the Supreme Court issued its published decision vacating
the judgment of the Fifth Circuit and
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in thousands, except per share data)
120
remanding the case to the Fifth Circuit for further proceedings consistent with
the Supreme Court’s opinion.
On
April 2, 2019, the District Court stayed the proceeding in the trial court pending
resolution by the Fifth Circuit.
The
Fifth Circuit heard oral argument on May 1, 2019 on whether the case should be arbitrated.
The Fifth Circuit
issued its opinion on August 14, 2019 affirming the District Court’s order denying defendants’ motions to compel
arbitration.
Defendants filed a petition for rehearing en banc before the Fifth
Circuit.
The Fifth Circuit denied that
petition.
On October 1, 2019, the District Court set the case for trial
on February 3, 2020, which was subsequently
moved to January 29, 2020.
On January 24, 2020 the Supreme Court granted our motion to stay
the District Court
proceedings, pending the disposition of our petition for writ of certiorari, which
was filed on January 31, 2020.
Archer conditionally cross petitioned for certiorari on an arbitration issue
on March 2, 2020.
On June 15, 2020, the
Supreme Court granted our petition for writ of certiorari, and denied Archer’s conditional
petition for certiorari, and
thus the District Court proceedings remained stayed.
After briefing from the parties and several amici, the case was
argued before the Supreme Court on December 8, 2020.
On January 25, 2021, the Supreme Court dismissed the
writ of certiorari as improvidently granted.
That action dissolved the stay the Supreme Court had previously
granted, and thus the trial of the lawsuit may proceed.
The U.S. District Court for the Eastern District of Texas has
scheduled a Status Conference for February 19, 2021.
Patterson and the Danaher Defendants settled with Archer
and they have been dismissed from the case with prejudice.
Benco is still a defendant. We intend to defend
ourselves vigorously against this action.
On
May 29, 2018
, an amended complaint was filed in the MultiDistrict Litigation (“MDL”)
proceeding In Re
National Prescription Opiate Litigation (MDL No. 2804; Case No. 17-md-2804)
in an action entitled
The County of
Summit, Ohio et al
. v. Purdue Pharma, L.P.,
et al., Civil Action No. 1:18-op-45090-DAP (“County of
Summit
Action”), in the U.S. District Court for the Northern District of Ohio, adding Henry
Schein, Inc.,
Henry Schein
Medical Systems, Inc. and others as defendants
.
Summit County alleged that manufacturers of prescription opioid
drugs engaged in a false advertising campaign to expand the market for such drugs and their own market share and
that the entities in the supply chain (including Henry Schein, Inc. and Henry Schein Medical Systems, Inc.) reaped
financial rewards by refusing or otherwise failing to monitor appropriately and restrict the improper distribution of
those drugs.
On October 29, 2019, the Company was dismissed with prejudice from this lawsuit. Henry Schein,
working with Summit County, donated $1 million to a foundation and paid $250,000 of Summit County’s
expenses, as described in our prior filings with the SEC.
In addition to the County of Summit Action,
Henry Schein and/or one or more of its affiliated companies
have been
named as a defendant in multiple lawsuits (currently less than one-hundred
and fifty (
150
)), which
allege claims
similar to those alleged in the County of Summit Action.
These actions consist of some that have been consolidated
within the MDL and are currently abated for discovery purposes, and others which
remain pending in state courts
and are proceeding independently and outside of the MDL.
On October 9, 2020, the Circuit Court of the 17th
Judicial Circuit in and for Broward County, Florida, Case No. CACE19018882, granted Henry Schein’s motion to
dismiss the claims brought against it in the action filed by North Broward
Hospital District et. al.
The Florida court
gave plaintiffs until November 24, 2020 to replead their claims against Henry Schein.
On January 8, 2021, Henry
Schein filed a motion to dismiss the Amended Complaint. An action filed by Tucson Medical Center et
al. was
previously scheduled for trial beginning on June 1, 2021 but the court has vacated
that trial date.
At this time, the
only case set for trial is the action filed by West Virginia
University Hospitals, Inc. et al., which is currently
scheduled for a non-jury liability trial on Plaintiffs’ public nuisance claims on November 1,
2021.
Of Henry
Schein’s 2020 revenue of approximately $
10.1
billion from continuing operations, sales of opioids represented
less
than one-tenth of
1
percent.
Opioids represent a negligible part of our business.
We intend to defend ourselves
vigorously against these actions.
On
September 30, 2019
, the
City of Hollywood Police Officers Retirement System, individually and on behalf of
all others similarly situated
, filed a putative class action complaint for violation of the federal
securities laws
against
Henry Schein, Inc., Covetrus, Inc., and Benjamin Shaw and Christine Komola (Covetrus’s then Chief
Executive Officer and Chief Financial Officer, respectively)
in the U.S. District Court for the Eastern District of
New York,
Case No. 2:19-cv-05530-FB-RLM.
The complaint seeks to certify a class consisting of all persons and
entities who, subject to certain exclusions, purchased or otherwise acquired Covetrus common stock from February
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in thousands, except per share data)
121
8, 2019 through August 12, 2019. The case relates to the Animal Health Spin-off and Merger of the Henry Schein
Animal Health Business with Vets First Choice in February 2019. The complaint alleges violations of Sections
10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5 and asserts that defendants’ statements in the offering
documents and after the transaction were materially false and misleading
because they purportedly overstated
Covetrus’s capabilities as to inventory management and supply-chain services, understated the costs of integrating
the Henry Schein Animal Health Business and Vets First Choice, understated Covetrus’s separation costs from
Henry Schein, and understated the impact on earnings from online competition
and alternative distribution channels
and from the loss of an allegedly large customer in North America just before the Separation and
Merger.
The
complaint seeks unspecified monetary damages and a jury trial.
Pursuant to the provisions of the PSLRA, the court
appointed lead plaintiff and lead counsel on December 23, 2019.
Lead plaintiff filed a Consolidated Class Action
Complaint on February 21, 2020.
Lead plaintiff added Steve Paladino, our Chief Financial Officer, as a defendant
in the action.
Lead plaintiff filed an Amended Consolidated Class Action Complaint on May 21, 2020,
in which it
added a claim that Mr. Paladino is a “control person” of Covetrus.
We intend to defend ourselves vigorously
against this action.
On
November 15, 2019
,
Frank Finazzo
filed a putative shareholder derivative action on behalf of Henry
Schein,
Inc. against various present and former directors and officers of Henry Schein in
the U.S. District Court for the
Eastern District of New York, Case No. 1:19-cv-6485-LDH-JO.
The named defendants in the action were Stanley
M. Bergman, Steven Paladino, Timothy J. Sullivan, Barry J. Alperin, Lawrence S. Bacow, Gerald A. Benjamin,
James P. Breslawski, Paul Brons, Shira Goodman, Joseph L. Herring, Donald J. Kabat, Kurt Kuehn, Philip A.
Laskawy, Anne H. Margulies, Karyn Mashima, Norman S. Matthews, Mark E. Mlotek, Carol Raphael, E. Dianne
Rekow, Bradley T. Sheares, and Louis W. Sullivan, with Henry Schein named as a nominal defendant.
The
Complaint asserted claims under the federal securities laws and state law
relating to the allegations in the antitrust
actions, the In re Henry Schein, Inc. Securities Litigation, and the City of Hollywood
securities class action
described in our prior filings with the SEC and/or above.
The complaint sought declaratory, injunctive, and
monetary relief on behalf of Henry Schein.
On January 6, 2020, one of the two law firms that filed the Finazzo
case filed another, virtually identical putative shareholder derivative action on behalf of Henry Schein
against the
same defendants, asserting the same claims and seeking the same relief.
That case, captioned Mark Sloan v.
Stanley M. Bergman, et al., was also filed in the U.S. District Court for the Eastern
District of New York, Case No.
1:20-cv-0076.
On January 24, 2020, the court consolidated the Finazzo and Sloan
cases under the new caption In
re Henry Schein, Inc. Derivative Litigation, No. 1:19-cv-06485-LDH-JO, and appointed the
two law firms that filed
the Finazzo case as co-lead counsel for the consolidated action.
The parties agreed to a resolution of this matter
subject to various conditions, including court approval.
The settlement involves the adoption of certain procedures
but does not involve the payment of any money except a fee to the
plaintiffs’ attorneys that is immaterial.
After the
court referred the motion to approve the settlement to a Magistrate Judge,
the parties consented to having the case
assigned to the Magistrate Judge for all purposes.
The Magistrate Judge to which the matter was ultimately
assigned held a fairness hearing and issued an order and judgment approving
the settlement.
The order and
judgment approving the settlement have become final.
On February 5, 2021, Jack Garnsey filed a putative shareholder derivative
action on behalf of Covetrus, Inc. in the
U.S. District Court for the Eastern District of New York, naming as defendants Benjamin Shaw, Christine T.
Komola, Steven Paladino, Betsy Atkins, Deborah G. Ellinger, Sandra L. Helton, Philip A. Laskaway, Mark J.
Manoff, Edward M. McNamara, Ravi Sachdev, David E. Shaw, Benjamin Wolin,
and Henry Schein, Inc., with
Covetrus, Inc. named as a nominal defendant.
The complaint alleges that the individual defendants breached
their
fiduciary duties under state law in connection with the same allegations
asserted in the City of Hollywood securities
class action described above and further alleges that Henry Schein aided
and abetted such breaches. The complaint
also asserts claims for contribution under the federal securities laws against
Henry Schein and other defendants,
also arising out of the allegations in the City of Hollywood lawsuit.
The complaint seeks declaratory, injunctive,
and monetary relief. We intend to defend ourselves vigorously against this action.
From time to time, we may become a party to other legal proceedings,
including, without limitation, product
liability claims, employment matters, commercial disputes, governmental
inquiries and investigations (which may
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 30,
December 31,
December 25,
2023
2022
2021
Comprehensive income attributable to
Henry Schein, Inc.
$
443
$
476
$
568
Comprehensive income attributable to
noncontrolling interests
14
6
6
Comprehensive income attributable to
Redeemable noncontrolling interests
11
15
17
Comprehensive income
$
468
$
497
$
591
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
124
Note 21 – Earnings Per Share
Basic earnings per share is computed by dividing net income attributable
to Henry Schein, Inc. by the weighted-
average number of common shares outstanding for the period.
Our diluted earnings per share is computed similarly
to basic earnings per share, except that it reflects the effect of common shares issuable
for unvested RSUs and upon
exercise of stock options using the treasury stock method in periods
in which they have a dilutive effect.
A reconciliation of shares used in calculating earnings per basic and
diluted share follows:
Years
Ended
December 30,
December 31,
December 25,
2023
2022
2021
Basic
130,618,990
136,064,221
140,090,889
Effect of dilutive securities:
Stock options and restricted stock units
1,129,181
1,691,449
1,681,892
Diluted
131,748,171
137,755,670
141,772,781
The number of antidilutive securities that were excluded from the calculation
of diluted weighted average common
shares outstanding are as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Years
 
Ended
HENRY SCHEIN, INC.December 30,
December 31,
December 25,
2023
2022
2021
Stock options
424,695
342,716
611,869
Restricted stock units
15,040
19,466
1,048
Total anti-dilutive
 
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in thousands, exceptsecurities excluded from earnings per share data)
computation
122439,735
362,182
612,917
in some cases involve our
Note 22 – Supplemental Cash Flow Information
 
entering into settlement arrangements or consent decrees), and other
matters arising out
of the ordinary course of our business.
While the results of any legal proceeding cannot be predicted with certainty,
in our opinion none of these other pending matters are currently anticipated
to have a material adverse effect on our
consolidated financial position, liquidity or results of operations.
As of December 26, 2020, we had accrued our best estimate of potential losses relating to claims that were probable
to result in liability and for which we were able to reasonably estimate a loss. This accrued amount, as well as
related expenses, was not material to our financial position, results of operations or cash flows. Our method for
determining estimated losses considers currently available facts, presently enacted laws and regulations and other
factors, including probable recoveries from third parties.
Note 21 – Quarterly Information (Unaudited)
The following tables present certain quarterly financial data:Cash paid for interest and income taxes was:
 
Quarters ended
March 28,
June 27,
September 26,
December 26,
2020
2020
2020
2020
Net sales
$
2,428,871
$
1,684,399
$
2,840,146
$
3,165,725
Gross profit
746,039
454,294
754,299
859,711
Restructuring costs
(1)
4,787
15,934
6,992
4,380
Operating income (loss)
173,865
(7,433)
187,671
181,200
Net gain on sale of equity investments
(2)
0
0
0
1,572
Net income (loss) from continuing operations
133,847
(13,852)
151,813
146,629
Amounts attributable to Henry Schein, Inc.
from continuing operations:
Net income (loss)
130,543
(11,382)
141,726
141,921
Earnings (loss) per share attributable to
Henry Schein, Inc. from continuing operations:
Basic
$
0.91
$
(0.08)
$
1.00
$
1.00
Diluted
0.91
(0.08)
0.99
0.99
Quarters ended
March 30,
June 29,
September 28,
December 28,
2019
2019
2019
2019
Net sales
$
2,360,268
$
2,447,827
$
2,508,767
$
2,668,941
Gross profit
751,690
767,431
761,167
810,598
Restructuring costs (credits)
(1)
4,641
11,925
(802)
(1,059)
Operating income
172,441
162,288
187,198
196,334
Net gain on sale of equity investments
(2)
0
0
0
186,769
Net income from continuing operations
123,640
121,417
143,212
337,192
Amounts attributable to Henry Schein, Inc.
from continuing operations:
Net income
118,413
116,753
134,916
330,609
Earnings per share attributable to Henry Schein, Inc.
from continuing operations:
Basic
$
0.79
$
0.79
$
0.92
$
2.27
Diluted
0.78
0.78
0.91
2.25
(1) See
for details of the restructuring costs (credits) incurred during our 2020 and 2019
fiscal years.
(2) See
for details of the net gain on sale of equity investments.
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in thousands, except per share data)
123
Note 22 – Supplemental Cash Flow Information
Cash paid for interest and income taxes was:
Years
 
ended
December 26,30,
December 28,31,
December 29,25,
20202023
20192022
20182021
Interest
$
43,12384
$
54,68547
$
69,37129
Income taxes
206,796218
177,277265
236,479242
For the years ended December 26, 2020,30, 2023, December 28, 201931, 2022 and December
 
29, 2018,25, 2021, we had $
(10.2)
million,
$
(4.9)(25)
 
million, $
10
million and $
1.012
 
million of non-cash net unrealized gains (losses) related to foreignhedging
 
currency hedging
activities, respectively.
 
See
During the third quarter of 2018, we formed Henry Schein One, LLCNote 12 – Derivatives and Hedging Activities
for additional information related to our total return swap and
 
with Internet Brands through a non-cashour
transaction resulting ininterest rate swap agreements.
There was approximately $
390.3143
 
million of noncontrolling interest representing Internet Brands’
current
26
% minority interest and $
160.6
debt assumed as part of the acquisitions for the year ended
 
millionDecember 30,
2023.
Debt assumed during the year ended December 30, 2023 primarily
relates to the acquisitions of deferred additional ownership interests of Internet Brands
inBiotech
Henry Schein One, representing up to an additionalDental and S.I.N.
9.2
% ownership interests at December 26, 2020, a portion of
which is contingent upon the achievement of certain operating targets.
During the third quarter of 2020, the Internet
Brands ownership interest in Henry Schein One, LLC increased to
27
%.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
125
Note 23 – Related Party Transactions
In connection with the completion of the Animal Health Spin-off during our 2019
fiscal year, we entered into a
transition services agreement with Covetrus under which we have agreed
to provide certain transition services for
up to twenty-four months in areas such as information technology, finance and accounting, human resources,
supply chain, and real estate and facility services
(see
for additional details).
For the years ended December 26, 2020 and December 28, 2019, we recorded approximately
$
13.0
million and
$
17.5
million of fees for these services, respectively.
Pursuant to the transition services agreement, Covetrus
purchased certain products from us.
During the years
ended December 26, 2020 and December 28, 2019, net sales
to Covetrus under the transition services agreement were approximately
$
75.3
million and $
81.3
million,
respectively.
Sales to Covetrus under the transition services
agreement ended in December 2020.
At December 26,
2020 we had $
0.3
million payable to Covetrus under this transition services agreement.
In connection with the formation of Henry Schein One, LLC, our joint venture
with Internet Brands, which was
formed on July 1, 2018, we entered into a
ten-year
royalty agreement with Internet Brands whereby we will pay
Internet Brands approximately $31.0 $
31
million annually for the use of their intellectual property.
During the years
ended December 30, 2023, December 31, 2022 and December 25, 2021, we recorded
$
31
 
During 2020, 2019
and 2018, we recorded $
31.0
, million, $
31.031
 
million and
$
15.531
 
million, respectively, in connection with costs related
to this royalty agreement.
 
As of December 26, 202030, 2023 and
December 28, 2019,31, 2022, Henry Schein One, LLC
had a net payable balance
receivable balance due fromto Internet Brands of $
4.71
 
million and $
9.49
million, respectively, comprised of amounts
related to results of operations and the royalty agreement andagreement.
The
components of this payable are recorded within accrued expenses: other, management fees.respectively, within our consolidated
balance sheets.
During our normal course of business, we We
have interests in entities that we account for under the equity accounting
method.
 
Duringmethod.
In our fiscalnormal course of
business, during the years ended 2020, 2019 December 30, 2023, December 31, 2022
and 2018,December 25, 2021, we recorded net
net sales of $
59.646
 
million, $
93.246
 
million,
and $
27.048
 
million respectively, to such entities.
 
During our fiscalthe years ended 2020, 2019December
30, 2023, December 31, 2022 and 2018,December 25, 2021, we purchased
$
12.610
 
million, $
11.89
 
million and $
10.815
 
million
respectively, from such entities.
 
At December 26, 202030, 2023 and
December 28, 2019,31, 2022, we had in thean aggregate
$
36.432
million
and $
36
million, respectively, due from our equity affiliates, and $
5
 
million and $
31.06
 
million, due from our equity affiliates, and
$
8.6
million and $
4.9
millionrespectively, due to our
equity affiliates, respectively.affiliates.
Certain of our facilities related to our acquisitions are leased from employees
and minority shareholders.
Please see
for further information.
124126
ITEM 9.
 
Changes in and Disagreements with Accountants on Accounting and
 
Financial Disclosure
None.
ITEM 9A.
 
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of management, including
 
our principal executive officer and
principal financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this annual report as
 
such term is defined in Rules 13a-15(e) and
15d-15(e) promulgated under the Securities Exchange Act of 1934,
 
as amended (the “Exchange Act”).
Based on
this evaluation, our management, including our principal executive
officer and principal
financial officer,
concluded that our disclosure controls and procedures were effective as of December 26,30,
 
20202023, to ensure that all
material information required to be disclosed by us in reports that we file
 
or submit under the Exchange Act is
accumulated and communicated to them as appropriate to allow timely
 
decisions regarding required disclosure and
that all such information is recorded, processed, summarized and reported
 
within the time periods specified in the
SEC’s rules and forms.forms, and the rules of the Nasdaq stock exchange.
 
Changes in Internal Control over Financial Reporting
During the quarter ended December 30, 2023, we acquired a 90% voting
 
equity interest in Shield, a supplier of
homecare medical products headquartered in California.
 
The full integration of this acquisition, as well as our
previously reported acquisitions of S.I.N and Biotech Dental, extended
beyond year-end and, therefore, we
excluded Shield, Biotech Dental, and S.I.N., which together represent
less than 1.5% of our total net sales, from our
annual assessment of internal control over financial reporting as of December
30, 2023, as permitted by SEC staff
interpretive guidance for newly acquired businesses.
Post-acquisition integration related activities for other dental and
medical businesses acquired during 2023 across
the U.S., Europe, Brazil, Australia, and China were included in
our annual assessment of internal control over
financial reporting as of December 30, 2023.
These acquisitions, the majority of which utilize separate information
and financial accounting systems, have been included in our consolidated financial
statements since their respective
dates of acquisition.
Finally, we continued systems implementation activities in the U.S. for two of our dental businesses.
The combination of acquisitions (including Shield, S.I.N., and Biotech
Dental), continued acquisition integrations
and systems implementation activities undertaken
during the quarter
and carried
over from prior quarters as well as changes to the operating methods of some
of our internal controls over financialwhen
reporting due to the COVID-19 pandemic, when considered in the aggregate,
represents a material change in our
internal control over financial reporting.
 
During the quarter, ended December 26, 2020,
we completed the acquisition of a dental business in North America
with approximate aggregate annual revenues of approximately $20
million.
In addition, post-acquisition integration
related activities continued for our global dental and North American
medical businesses acquired during prior
quarters, representing aggregate annual revenues of approximately $370 million.
Theseall acquisitions, the majority
of which utilize separate information and financial accounting systems, have
been included in our consolidated
financial statements since their respective dates of acquisition.
All acquisitions and continued acquisition integrations and systems implementation activities
involve necessary
and appropriate change-management controls
controls that are considered in our annualquarterly assessment of the design and operating effectiveness of
changes in our internal
control over financial reporting.
In October 2023, we experienced a cybersecurity incident that primarily
affected the operations of our North
American and European dental and medical distribution businesses.
Once we became aware of the issue, as part of
the Company’s incident response plan, we took precautionary actions to contain the incident including shutting
down connectivity to networks and key business, operating and financial
accounting systems globally.
In addition
to notifying affected and potentially affected third parties and all relevant law enforcement
authorities, we engaged
external cyber-security experts to support our assessment of the cyber-incident’s impact as well as sanitize, rebuild
and restore our affected systems and applications.
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.
127
Subsequently, on or about November 8, 2023, we determined that the threat actor obtained personal and sensitive
information maintained on our systems belonging to certain third parties and
since that date we have notified
affected parties and potentially affected parties as appropriate.
The scope of personal and sensitive data impacted is
still under investigation.
 
In addition, asOn November 22, 2023, we experienced a result of a combination of continued governmental imposedrelated disruption to our
 
ecommerce platform and Company directed closuresrelated applications,
which has since been remediated.
In order to mitigate the impact of
some of this disruption on our facilities due to the COVID-19 pandemic, we have hadsystems and on our
 
ability to maintain a number of changes to theservice customers, alternative
operating methods of some of our internal controls. For example, movingprocedures and controls were temporarily implemented.
Management’s
 
from manual sign-offs and in-person
meetings to electronic sign-offs and electronic communications such as email and
telephonic or video conference
due to out-of-office working arrangements. However, the design of our internal control framework and objectives
over financial reporting remains unchanged and we do not believe that
these changes have materially affected, or
are reasonably likely to materially affect, the effectiveness of our internal control over financial
reporting.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate
 
internal control over financial reporting,
as such term is defined in Exchange Act Rule 13a-15(f).
 
Our internal control system is designed to provide
reasonable assurance to our management and Board of Directors regarding the preparation
 
preparation and fair presentation of published
published financial statements.
 
Under the supervision and with the participation of our management,
 
management, including our principal
principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal
internal control over financial reporting based on the
framework in Internal Control-Integrated
Framework (2013), updated
updated and reissued by the Committee of Sponsoring Organizations, or the COSO Framework.
 
Framework. Based on our
evaluation
125
evaluation under the COSO Framework, our management concluded that our
 
internal control over financial
reporting was
effective at a reasonable assurance level as of December 26, 2020.
30, 2023.
The effectiveness of our internal control over financial reporting as of December 26,30,
 
20202023, has been independently
audited by BDO USA, LLP,P.C., an independent registered public accounting firm, and their attestation is included
herein. The evaluation of internal controls involves judgment.
Our external auditor has concluded that the
Company has a material weakness resulting from the aggregation of certain
control deficiencies at the application
control level related to logical and user access management and segregation of
duties.
The Company agrees that
there are control deficiencies that our external auditor has identified, all of which
either have been addressed or are
being addressed. The Company’s management has considered the control deficiencies identified by our
external
auditor, and believes that, individually and in aggregate, they do not result in a material weakness.
A material
weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such
that
there is a reasonable possibility that a material misstatement of the
company’s financial statements will not be
prevented or detected on a timely basis.
Limitations of the Effectiveness of Internal Control
A control system, no matter how well conceived and operated, can provide
 
only reasonable, not absolute, assurance
that the objectives of the internal control system are met.
Because of
the inherent limitations of any internal control
system, no evaluation of controls can provide absolute assurance that
 
all control issues, if any, within a company
have been detected.
128
Report of Independent Registered Public Accounting Firm
126
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
StockholdersShareholders and Board of Directors
Henry Schein, Inc.
Melville, NY
Opinion on Internal Control over Financial Reporting
We
 
have audited Henry
 
Schein, Inc.’s
 
(the “Company’s”)
 
internal control over
 
financial reporting as
 
of December
26, 2020,30, 2023, based on
criteria established in
Internal Control
– Integrated Framework (2013)
issued
 
issued by the Committee
of
Sponsoring
Organizations
of
the
Treadway
Commission
(the (the
 
“COSO
criteria”).
In
our
opinion,
the
Company did
maintained,not maintain,
 
in
all
 
material
respects,
 
effective
internal
 
control
over
 
financial
reporting
 
as
of
 
December 30,
 
26,
2020,2023,
based on the COSO criteria.
We
 
do
not
express
an
opinion
or
any
other
form
of
assurance
on
management’s
statements
referring
to
any
corrective actions taken by the Company after the date of management’s assessment.
We
 
also
 
have
 
audited,
 
in
 
accordance
 
with
 
the
 
standards
 
of
 
the
 
Public
 
Company
 
Accounting
 
Oversight
 
Board
(United
 
States)
 
(“PCAOB”),
 
the
 
consolidated
 
balance
 
sheets
 
of
 
the
 
Company
 
as
 
of
 
December
 
26,30,
 
20202023
 
and
December
 
28,31,
 
2019, the
related
consolidated statements
of
income, comprehensive
income,
stockholders’ equity,
and
cash
flows
for
each
of
the
three
years
in
the
period
ended
December
26,
2020,
and2022,
 
the
 
related
 
consolidated
statements
of
income,
comprehensive
income,
changes
in
stockholders’ equity,
and cash
flows for
each of
the three
years in
the
period ended
December 30,
2023, and
the
related
notes
 
(collectively
referred
to
as
“the
financial
statements”)
and
our
report
dated
February
28,
2024
schedule and our report dated February 17, 2021 expressed an unqualified
opinion thereon.
Basis for Opinion
The Company’s
 
management is
 
responsible for
 
maintaining effective
 
internal control
 
over financial
 
reporting and
for
 
its
 
assessment
of
 
the
 
effectiveness
 
of
 
internal
control
 
over
financial
 
reporting,
included
 
in
 
the
 
accompanying,
“Item 9A, Management’s
 
Report on Internal
 
Control over Financial Reporting”. Our
 
responsibility is to express
 
an
opinion on the
 
Company’s internal
 
control over financial
 
reporting based on
 
our audit. We
 
are a public
 
accounting
firm
 
registered
 
with
 
the
 
PCAOB and
 
are
 
required
 
to
 
be
 
independent
 
with
 
respect
 
to
 
the
 
Company in
 
accordance
with
 
U.S.
 
federal
 
securities
 
laws
 
and
 
the
 
applicable
 
rules
 
and
 
regulations
 
of
 
the
 
Securities
 
and
 
Exchange
Commission and the PCAOB.
We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB.
Those standards require
 
that we plan
 
and perform the
 
audit to
 
obtain reasonable assurance
 
about whether effective
internal
 
control
 
over
 
financial
 
reporting
 
was
 
maintained
 
in
 
all
 
material
 
respects.
 
Our
 
audit
 
included
 
obtaining
 
an
understanding
 
of
 
internal
 
control
 
over
 
financial
 
reporting,
 
assessing
 
the
 
risk
 
that
 
a
 
material
 
weakness
 
exists,
 
and
testing
 
and
 
evaluating
 
the
 
design
 
and
 
operating
 
effectiveness
 
of
 
internal
 
control
 
based
 
on
 
the
 
assessed
 
risk.
 
Our
audit also included performing
 
such other procedures as we
 
considered necessary in the
 
circumstances. We
 
believe
that our audit provides a reasonable basis for our opinion.
A material
weakness is
a deficiency,
or a
combination of
deficiencies, in
internal control
over financial
reporting,
such
that
there
is
a
reasonable
possibility
that
a
material
misstatement
of
the
Company’s
annual
or
interim
consolidated
financial
statements
will
not
be
prevented
or
detected
on
a
timely
basis.
We
have
identified
the
following material weakness
that has not
been identified as
a material weakness
in management’s
assessment. The
material weakness in
internal control over
financial reporting is
related to logical
and user access
management and
segregation
of
duties,
at
the
application
control
level,
in
certain
information
technology
environments
at
certain
components.
There
is
a
reasonable
possibility
that
a
material
misstatement
of
the
Company’s
annual
or
interim
consolidated
financial
statements
with
respect
to
these
matters
would
not
have
been
prevented
or
detected
on
a
timely
basis.
This
material
weakness
was
considered
in
determining
the
nature,
timing,
and
extent
of
audit
tests
applied in
our audit
of the
2023 consolidated
financial statements,
and this
report does
not affect
our report
dated
February 28, 2024, on those consolidated financial statements.
As indicated in
the accompanying “Item
9A, Management’s
Report on Internal
Control over Financial
Reporting”,
management’s assessment of and conclusion on the effectiveness of internal control
over financial reporting did not
include
the
internal
controls
of
Shield
Healthcare,
Inc.,
S.I.N.
Implant
System,
and
Biotech
Dental,
which
were
129
acquired
during
the
year
ended
December
30,
2023,
and
are
included
in
the
consolidated
balance
sheet
of
the
Company
as
of
December
30,
2023,
and
the
related
consolidated
statements
of
income,
comprehensive
income,
changes
in
stockholders’
equity,
and
cash
flows
for
the
year
then
ended.
Shield
Healthcare,
Inc.,
S.I.N.
Implant
System, and
Biotech Dental,
together represent
less than
1.5% of
total net
sales for
the year
ended December
30,
2023. Management did not assess the effectiveness of internal control over financial reporting of Shield Healthcare,
Inc.,
S.I.N.
Implant
System,
or
Biotech
Dental
because
of
the
timing
of
the
acquisitions
which
were
completed
during the
year ended
December 30,
2023. Our
audit of
internal control
over financial
reporting of
the Company
also did
not include
an evaluation
of the
internal control
over financial
reporting of
Shield Healthcare,
Inc., S.I.N.
Implant System, or Biotech Dental.
Definition and Limitations of Internal Control over Financial Reporting
A
 
company’s
 
internal
 
control
 
over
 
financial
 
reporting
 
is
 
a
 
process
 
designed
 
to
 
provide
 
reasonable
 
assurance
regarding the
 
reliability of
 
financial reporting
 
and the
 
preparation of
 
financial statements
 
for external
 
purposes in
accordance
 
with
 
generally
 
accepted
 
accounting
 
principles.
 
A
 
company’s
 
internal
 
control
 
over
 
financial
 
reporting
includes
 
those
 
policies
 
and
 
procedures
 
that
 
(1)
 
pertain
 
to
 
the
 
maintenance
 
of
 
records
 
that,
 
in
 
reasonable
 
detail,
accurately and
 
fairly reflect
 
the transactions
 
and dispositions
 
of the
 
assets of
 
the company;
 
(2) provide
 
reasonable
assurance
 
that
 
transactions
 
are
 
recorded
 
as
 
necessary
 
to
 
permit
 
preparation
 
of
 
financial
 
statements
 
in
 
accordance
with generally
 
accepted accounting
 
principles, and
 
that receipts
 
and expenditures
 
of the
 
company are
 
being made
only
 
in
 
accordance with
 
authorizations of
 
management and
 
directors of
 
the
 
company; and
 
(3) provide
 
reasonable
assurance
 
regarding
 
prevention
 
or
 
timely
 
detection
 
of
 
unauthorized
 
acquisition,
 
use,
 
or
 
disposition
 
of
 
the
company’s assets that could have a material effect on the financial statements.
Because
 
of
 
its
 
inherent
 
limitations,
 
internal
 
control
 
over
 
financial
 
reporting
 
may
 
not
 
prevent
 
or
 
detect
misstatements.
 
Also,
 
projections
 
of
 
any
 
evaluation
 
of
 
effectiveness
 
to
 
future
 
periods
 
are
 
subject
 
to
 
the
 
risk
 
that
controls
 
may
 
become
 
inadequate
 
because
 
of
 
changes
 
in
 
conditions,
 
or
 
that
 
the
 
degree
 
of
 
compliance
 
with
 
the
policies or procedures may deteriorate.
 
/s/ BDO USA, LLP
P.C.
New York
 
,
 
NY
 
February 17, 2021
28, 2024
127130
ITEM 9B.
 
Other Information
Not applicable.
ITEM 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART
 
III
ITEM 10.
 
Directors, Executive Officers and Corporate Governance
Information required by this item regarding our directors and executive
 
officers and our corporate governance is
hereby incorporated by reference to the Section entitled “Election of Directors,”
 
with respect to directors, and the
first paragraph of the Section entitled “Corporate Governance - Board
 
of Directors Meetings and Committees -
Audit Committee,” with respect to corporate governance, in each case
 
in our definitive 20212024 Proxy Statement to be
filed pursuant to Regulation 14A and to the Section entitled “Information
 
about our Executive Officers” in Part I of
this report, with respect to executive officers.
 
There have been no changes to the procedures by which stockholders
 
may recommend nominees to our Board ofsince
Directors since our last disclosure of such procedures, which appeared
in our definitive 2020
2023 Proxy Statement filed
pursuant to
Regulation 14A on April 7, 2020.
11, 2023.
Information required by this item concerning compliance with Section
 
16(a) of the Securities Exchange Act of
1934 is hereby incorporated by reference to the Section entitled “Delinquent
 
“Delinquent Section 16(a) Reports” in our
definitive 20212024 Proxy Statement to be filed pursuant to Regulation 14A,
 
to the extent responsive disclosure is
required.
We have adopted a Code of Ethics that applies to our Chief Executive Officer, Chief Financial Officer, Chief
Accounting Officer and Controller.
 
We make available free of charge through our Internet website,
www.henryschein.com,
, under the “About Henry Schein--Corporate Governance Highlights”
 
Highlights” caption, our Code of
Ethics.
 
We intend to disclose on our Web
 
site any amendment to, or waiver of, a provision of the Code
 
of Ethics.
ITEM 11.
 
Executive Compensation
The information required by this item is hereby incorporated by reference
 
to the Sections
entitled “Compensation
Discussion and Analysis,” “Compensation Committee Report” (which information
 
information shall be deemed furnished in
this Annual Report on Form 10-K), “Executive and Director Compensation” and
 
and “Compensation“Compensation Committee
Interlocks and Insider Participation” in our definitive 20212024 Proxy Statement
 
to be filed pursuant to Regulation 14A.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
128131
ITEM 12.
 
Security Ownership of Certain Beneficial Owners and Management
 
and Related Stockholder
Matters
We maintain several stock incentive plans for the benefit of certain officers, directors and employees.
 
All active
plans have been approved by our stockholders.
 
Descriptions of these plans appear in the notes to our consolidated
financial statements.
 
The following table summarizes information relating to these plans as
 
of December 26, 2020:
30, 2023:
Number of Common
Shares to be Issued Upon
Weighted-
 
Average
Number of Common
Exercise of Outstanding
Exercise Price of
Shares Available
 
for
Plan Category
Options and Rights
Outstanding Options
Future Issuances
Plans Approved by Stockholders
-
$
-
6,077,5487,166,543
Plans Not Approved by Stockholders
-
-
-
Total
-
$
-
6,077,548
7,166,543
The other information required by this item is hereby incorporated by
 
reference to the Section entitled “Security
Ownership of Certain Beneficial Owners and Management” in our definitive
 
20212024 Proxy Statement to be filed
pursuant to Regulation 14A.
ITEM 13.
 
Certain Relationships and Related Transactions, and Director Independence
The information required by this item is hereby incorporated by reference
 
to the Section entitled “Certain
Relationships and Related Transactions” and “Corporate Governance – Board of Directors Meetings and
Committees – Independent Directors” in our definitive 20212024 Proxy Statement
 
to be filed pursuant to Regulation
14A.
ITEM 14.
 
Principal Accounting Fees and Services
The information required by this item is hereby incorporated by reference
 
to the Section entitled “Independent
Registered Public Accounting Firm Fees and Pre-Approval Policies and
 
Procedures” in our definitive 20212024 Proxy
Statement to be filed pursuant to Regulation 14A.
PART
 
IV
ITEM 15.
 
Exhibits, Financial Statement Schedules
 
(a)
List of Documents Filed as a Part of This Report:
1.
Financial Statements:
Our Consolidated Financial Statements filed as a part of this report
 
are listed on the index on
 
Page 69.62.
2.
Financial Statement Schedules:
Schedule II – Valuation of Qualifying Accounts
No other schedules are required.
3.
Index to Exhibits:
See exhibits listed under Item 15(b) below.
 
129132
(b)
Exhibits
130
133
132
133
**
135
136
137
135
136
101.INS
Inline XBRL Instance Document - the instance document does not appear
appear in the
Interactive Data File because its XBRL tags are
embedded within the Inline
XBRL
document.+
101.SCH
Inline XBRL Taxonomy Extension Schema Document+
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document+
138
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document+
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document+
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document+
104
The cover page of Henry Schein, Inc.’s Annual Report on Form 10-K
for the year ended
December 26, 2020,30, 2023, formatted in Inline XBRL
(included (included within Exhibit 101
attachments).+
_________
+
 
Filed or furnished herewith.
* Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company
hereby agrees to furnish supplementally a copy of any of the omitted schedules and exhibits upon request
by the U.S. Securities and Exchange Commission.
**
 
Indicates management contract or compensatory plan or agreement.
# Certain identified information has been excluded from the exhibit because
it is both not material and is the type
that the registrant treats as private or confidential.
 
ITEM 16.
 
Form 10-K Summary
None.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
137139
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
 
Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned,
 
thereunto duly authorized.
 
Henry Schein, Inc.
By: /s/ STANLEY M. BERGMAN
Stanley M. Bergman
Chairman and Chief Executive Officer
February 17, 202128, 2024
Pursuant to the requirements of the Securities Exchange Act of 1934, this
 
report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on
 
the dates indicated.
Signature
Capacity
Date
/s/ STANLEY M. BERGMAN
Chairman, Chief Executive Officer
February 17, 202128, 2024
Stanley M. Bergman
and Director (principal executive officer)
/s/ STEVEN PALADINORONALD N. SOUTH
ExecutiveSenior Vice President, Chief
 
Chief Financial Officer
February 17, 202128, 2024
Steven PaladinoRonald N. South
and Director (principal
(principal financial and accounting officer)
/s/ JAMES P.
 
BRESLAWSKI
Vice Chairman, President
 
and Director
February 17, 202128, 2024
James P.
 
Breslawski
/s/ GERALD A. BENJAMINMARK E. MLOTEK
Executive Vice President,
Chief Strategic Officer and
Director
February 17, 2021
Gerald A. Benjamin
/s/ MARK E. MLOTEK
Director
February 17, 202128, 2024
Mark E. Mlotek
/s/ MOHAMAD ALI
Director
February 17, 202128, 2024
Mohamad Ali
/s/ BARRY J. ALPERIN
Director
February 17, 2021
Barry J. Alperin
/s/ PAUL
BRONS
Director
February 17, 2021
Paul Brons
/s/ DEBORAH DERBY
Director
February 17, 202128, 2024
Deborah Derby
/s/ SHIRA GOODMANCAROLE T. FAIG
Director
February 17, 202128, 2024
Shira GoodmanCarole T. Faig
/s/ JOSEPH L. HERRING
Director
February 17, 202128, 2024
Joseph L. Herring
/s/ KURT P.
 
KUEHN
Director
February 17, 202128, 2024
Kurt P.
 
Kuehn
/s/ PHILIP A. LASKAWY
Director
February 17, 202128, 2024
Philip A. Laskawy
/s/ ANNE H. MARGULIES
Director
February 17, 202128, 2024
Anne H. Margulies
/s/ STEVEN PALADINO
Director
February 28, 2024
Steven Paladino
/s/ CAROL RAPHAEL
Director
February 17, 202128, 2024
Carol Raphael
/s/ E. DIANNE REKOWSCOTT SEROTA
Director
February 17, 202128, 2024
E. Dianne Rekow,
DDS, Ph.D.Scott Serota
/s/ BRADLEY T. SHEARES,
 
PH. D.PH.D.
Director
February 17, 202128, 2024
Bradley T. Sheares,
 
Ph. D.
Ph.D.
/s/ REED V.
 
TUCKSON, M.D., FACP
Director
February 28, 2024
Reed V.
 
138
Schedule II
Valuation
and Qualifying Accounts
(in thousands)
Additions (Reductions)
Charged
Balance at
Charged to
(credited) to
Balance at
beginning of
statement of
other
end of
Description
period
income (1)
accounts (2)
Deductions (3)
period
Year
ended December 26, 2020:
Allowance for doubtful accounts
and other
$
60,002
$
35,137
$
730
$
(7,839)
$
88,030
Yea
r
ended December 28, 2019:
Allowance for doubtful accounts
and other
$
53,121
$
12,612
$
134
$
(5,865)
$
60,002
Yea
r
ended December 29, 2018:
Allowance for doubtful accounts
and other
$
46,261
$
14,384
$
(1,158)
$
(6,366)
$
53,121
(1)
Represents amounts charged to bad debt expense.
(2)
Amounts charged (credited) to other accounts primarily relate to provision for late fees and the impact
of foreign currency exchange rates and
the adoption of ASU No. 2016-13 effective December 29, 2019.
(3)
Deductions primarily consist of fully reserved accounts receivable that have been written off.
Tuckson, M.D., FACP