HENRY SCHEIN, INC. September 25, 2021Delaware11-3136595(State or other jurisdiction of(I.R.S. Employer Identification No.)incorporation or organization)(631) Title of each classTrading Symbol(s)Name of each exchange on which registeredCommon Stock, par value $.01 per shareHSICThe Nasdaq Global Select MarketYes ☒No ☐ (or (orforsuchshorterperiodthattheregistrantwasYes ☒No ☐ “large “largeacceleratedfiler,” “accelerated “acceleratedfiler,” “smallerLarge accelerated filer ☒Accelerated filer ☐Non-accelerated filer ☐Smaller reporting company ☐Emerging growth company ☐Yes ☐No ☒OctoberApril 25, 2021,2022, 138,674,412 INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
| September 25, |
| December 26, | |||
|
|
|
|
| 2021 |
| 2020 | ||
|
|
|
|
| (unaudited) |
|
|
| |
ASSETS |
|
|
|
|
|
| |||
Current assets: |
|
|
|
|
|
| |||
| Cash and cash equivalents |
| $ | 119,133 |
| $ | 421,185 | ||
| Accounts receivable, net of reserves of $73,095 and $88,030 |
|
| 1,551,946 |
|
| 1,424,787 | ||
| Inventories, net |
|
| 1,784,050 |
|
| 1,512,499 | ||
| Prepaid expenses and other |
|
| 457,232 |
|
| 432,944 | ||
|
|
| Total current assets |
|
| 3,912,361 |
|
| 3,791,415 |
Property and equipment, net |
|
| 355,675 |
|
| 342,004 | |||
Operating lease right-of-use assets |
|
| 329,886 |
|
| 288,847 | |||
Goodwill |
|
| 2,779,234 |
|
| 2,504,392 | |||
Other intangibles, net |
|
| 645,832 |
|
| 479,429 | |||
Investments and other |
|
| 397,764 |
|
| 366,445 | |||
|
|
| Total assets |
| $ | 8,420,752 |
| $ | 7,772,532 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
| |||
Current liabilities: |
|
|
|
|
|
| |||
| Accounts payable |
| $ | 1,057,127 |
| $ | 1,005,655 | ||
| Bank credit lines |
|
| 59,394 |
|
| 73,366 | ||
| Current maturities of long-term debt |
|
| 9,638 |
|
| 109,836 | ||
| Operating lease liabilities |
|
| 77,383 |
|
| 64,716 | ||
| Accrued expenses: |
|
|
|
|
|
| ||
|
| Payroll and related |
|
| 345,438 |
|
| 295,329 | |
|
| Taxes |
|
| 157,446 |
|
| 138,671 | |
|
| Other |
|
| 594,979 |
|
| 595,529 | |
|
|
| Total current liabilities |
|
| 2,301,405 |
|
| 2,283,102 |
Long-term debt |
|
| 705,540 |
|
| 515,773 | |||
Deferred income taxes |
|
| 37,248 |
|
| 30,065 | |||
Operating lease liabilities |
|
| 270,152 |
|
| 238,727 | |||
Other liabilities |
|
| 388,211 |
|
| 392,781 | |||
|
|
| Total liabilities |
|
| 3,702,556 |
|
| 3,460,448 |
|
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interests |
|
| 612,582 |
|
| 327,699 | |||
Commitments and contingencies |
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
Stockholders' equity: |
|
|
|
|
|
| |||
| Preferred stock, $0.01 par value, 1,000,000 shares authorized, |
|
|
|
|
|
| ||
|
| NaN outstanding |
|
| 0 |
|
| 0 | |
| Common stock, $0.01 par value, 480,000,000 shares authorized, |
|
|
|
|
|
| ||
|
| 139,129,543 outstanding on September 25, 2021 and |
|
|
|
|
|
| |
|
| 142,462,571 outstanding on December 26, 2020 |
|
| 1,391 |
|
| 1,425 | |
| Additional paid-in capital |
|
| 0 |
|
| 0 | ||
| Retained earnings |
|
| 3,594,238 |
|
| 3,454,831 | ||
| Accumulated other comprehensive loss |
|
| (137,640) |
|
| (108,084) | ||
|
| Total Henry Schein, Inc. stockholders' equity |
|
| 3,457,989 |
|
| 3,348,172 | |
| Noncontrolling interests |
|
| 647,625 |
|
| 636,213 | ||
|
|
| Total stockholders' equity |
|
| 4,105,614 |
|
| 3,984,385 |
|
| Total liabilities, redeemable noncontrolling interests and stockholders' equity |
| $ | 8,420,752 |
| $ | 7,772,532 | |
Three Months Ended
(38)
CONDENSED CONSOLIDATED CHANGES IN Three Months Ended Nine Months Ended September 25, September 26, September 25, September 26, 2021 2020 2021 2020 Net sales $ 3,178,315 $ 2,840,146 $ 9,070,499 $ 6,953,416 Cost of sales 2,266,170 2,085,878 6,377,752 4,998,868 Gross profit 912,145 754,268 2,692,747 1,954,548 Operating expenses: Selling, general and administrative 701,499 559,605 2,038,292 1,572,732 Restructuring costs (credits) (175) 6,992 3,360 27,713 Operating income 210,821 187,671 651,095 354,103 Other income (expense): Interest income 1,409 2,294 4,749 7,481 Interest expense (6,550) (11,111) (19,411) (29,409) Other, net 403 (1,699) 1,066 (2,210) Income from continuing operations before taxes, equity in earnings of affiliates and noncontrolling interests 206,083 177,155 637,499 329,965 Income taxes (49,276) (29,005) (153,988) (65,965) Equity in earnings of affiliates 5,349 3,663 17,550 7,808 Gain on sale of equity investment 7,318 0 7,318 0 Net income from continuing operations 169,474 151,813 508,379 271,808 Income (loss) from discontinued operations, net of tax 0 (29) 0 274 Net income 169,474 151,784 508,379 272,082 Less: Net income attributable to noncontrolling interests (7,188) (10,087) (24,380) (10,921) Net income attributable to Henry Schein, Inc. $ 162,286 $ 141,697 $ 483,999 $ 261,161 Amounts attributable to Henry Schein Inc.: Continuing operations $ 162,286 $ 141,726 $ 483,999 $ 260,887 Discontinued operations 0 (29) 0 274 Net income attributable to Henry Schein, Inc. $ 162,286 $ 141,697 $ 483,999 $ 261,161 Earnings per share from continuing operations attributable to Henry Schein, Inc.: Basic $ 1.16 $ 1.00 $ 3.44 $ 1.83 Diluted $ 1.15 $ 0.99 $ 3.40 $ 1.82 Earnings per share from discontinued operations attributable to Henry Schein, Inc.: Basic $ 0 $ 0 $ 0 $ 0 Diluted $ 0 $ 0 $ 0 $ 0 Earnings per share attributable to Henry Schein, Inc.: Basic $ 1.16 $ 1.00 $ 3.44 $ 1.83 Diluted $ 1.15 $ 0.99 $ 3.40 $ 1.82 Weighted-average common shares outstanding: Basic 139,377 142,362 140,661 142,553 Diluted 141,079 143,091 142,179 143,308 AccumulatedSTATEMENTS STATEMENTOF INCOMEthousands,millions, except per share data)(unaudited)
5
HENRY SCHEIN, INC.
CONSOLIDATEDFINANCIAL STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
|
|
|
| Three Months Ended |
| Nine Months Ended | |||||||||
|
|
|
|
| September 25, |
| September 26, |
| September 25, |
| September 26, | ||||
|
|
|
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 169,474 |
| $ | 151,784 |
| $ | 508,379 |
| $ | 272,082 | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
| |||
| Foreign currency translation gain (loss) |
|
| (39,762) |
|
| 37,588 |
|
| (40,105) |
|
| (17,316) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unrealized gain (loss) from foreign currency hedging |
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| activities |
|
| 3,536 |
|
| (7,697) |
|
| 5,146 |
|
| 2,457 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unrealized investment gain (loss) |
|
| 2 |
|
| 2 |
|
| (1) |
|
| (5) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Pension adjustment gain (loss) |
|
| 624 |
|
| (338) |
|
| 1,466 |
|
| 161 | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax |
|
| (35,600) |
|
| 29,555 |
|
| (33,494) |
|
| (14,703) | |||
Comprehensive income |
|
| 133,874 |
|
| 181,339 |
|
| 474,885 |
|
| 257,379 | |||
| Comprehensive income attributable to noncontrolling |
|
|
|
|
|
|
|
|
|
|
|
| ||
| interests: |
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Net income |
|
| (7,188) |
|
| (10,087) |
|
| (24,380) |
|
| (10,921) | |
|
| Foreign currency translation (gain) loss |
|
| 4,739 |
|
| (1,636) |
|
| 3,938 |
|
| 10,744 | |
|
|
| Comprehensive income attributable to noncontrolling |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| interests |
|
| (2,449) |
|
| (11,723) |
|
| (20,442) |
|
| (177) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to Henry Schein, Inc. |
| $ | 131,425 |
| $ | 169,616 |
| $ | 454,443 |
| $ | 257,202 | |||
See accompanying notes.
5
HENRY SCHEIN, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands,millions, except share and per share data)
(unaudited)
|
|
|
|
|
|
|
| Accumulated |
|
|
|
| ||
|
| Common Stock | Additional |
|
| Other |
|
| Total | |||||
|
| $.01 Par Value | Paid-in | Retained | Comprehensive | Noncontrolling | Stockholders' | |||||||
|
| Shares |
| Amount | Capital | Earnings | Income / (Loss) | Interests | Equity | |||||
Balance, June 26, 2021 | 139,780,841 | $ | 1,398 | $ | 0 | $ | 3,465,647 | $ | (106,779) | $ | 646,415 | $ | 4,006,681 | |
Net income (excluding $5,737 attributable to Redeemable |
|
|
|
|
|
|
|
|
|
|
|
|
| |
| noncontrolling interests from continuing operations) | - |
| 0 |
| 0 |
| 162,286 |
| 0 |
| 1,451 |
| 163,737 |
Foreign currency translation loss (excluding loss of $4,668 |
|
|
|
|
|
|
|
|
|
|
|
|
| |
| attributable to Redeemable noncontrolling interests) | - |
| 0 |
| 0 |
| 0 |
| (35,023) |
| (71) |
| (35,094) |
Unrealized gain from foreign currency hedging activities, |
|
|
|
|
|
|
|
|
|
|
|
|
| |
| net of tax of $1,172 | - |
| 0 |
| 0 |
| 0 |
| 3,536 |
| 0 |
| 3,536 |
Unrealized investment gain, net of tax of $1 | - |
| 0 |
| 0 |
| 0 |
| 2 |
| 0 |
| 2 | |
Pension adjustment gain, net of tax of $269 | - |
| 0 |
| 0 |
| 0 |
| 624 |
| 0 |
| 624 | |
Dividends paid | - |
| 0 |
| 0 |
| 0 |
| 0 |
| (170) |
| (170) | |
Change in fair value of redeemable securities | - |
| 0 |
| (10,884) |
| 0 |
| 0 |
| 0 |
| (10,884) | |
Repurchase and retirement of common stock | (651,289) |
| (7) |
| (6,500) |
| (43,493) |
| 0 |
| 0 |
| (50,000) | |
Stock-based compensation expense | 11 |
| 0 |
| 27,546 |
| 0 |
| 0 |
| 0 |
| 27,546 | |
Shares withheld for payroll taxes | (20) |
| 0 |
| (1) |
| 0 |
| 0 |
| 0 |
| (1) | |
Settlement of stock-based compensation awards | 0 |
| 0 |
| (363) |
| 0 |
| 0 |
| 0 |
| (363) | |
Transfer of charges in excess of capital | - |
| 0 |
| (9,798) |
| 9,798 |
| 0 |
| 0 |
| 0 | |
Balance, September 25, 2021 | 139,129,543 | $ | 1,391 | $ | 0 | $ | 3,594,238 | $ | (137,640) | $ | 647,625 | $ | 4,105,614 | |
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
| |
|
| Common Stock | Additional |
|
| Other |
|
| Total | |||||
|
| $.01 Par Value | Paid-in | Retained | Comprehensive | Noncontrolling | Stockholders' | |||||||
|
| Shares |
| Amount | Capital | Earnings | Income / (Loss) | Interests | Equity | |||||
Balance, June 27, 2020 | 142,438,127 | $ | 1,424 | $ | 16,475 | $ | 3,172,439 | $ | (199,251) | $ | 630,458 | $ | 3,621,545 | |
Net income (excluding $6,092 attributable to Redeemable |
|
|
|
|
|
|
|
|
|
|
|
|
| |
| noncontrolling interests from continuing operations) | - |
| 0 |
| 0 |
| 141,697 |
| 0 |
| 3,995 |
| 145,692 |
Foreign currency translation gain (excluding gain of $1,277 |
|
|
|
|
|
|
|
|
|
|
|
|
| |
| attributable to Redeemable noncontrolling interests) | - |
| 0 |
| 0 |
| 0 |
| 35,952 |
| 359 |
| 36,311 |
Unrealized loss from foreign currency hedging activities, |
|
|
|
|
|
|
|
|
|
|
|
|
| |
| net of tax benefit of $2,793 | - |
| 0 |
| 0 |
| 0 |
| (7,697) |
| 0 |
| (7,697) |
Unrealized investment gain, net of tax of $0 | - |
| 0 |
| 0 |
| 0 |
| 2 |
| 0 |
| 2 | |
Pension adjustment loss, net of tax benefit of $133 | - |
| 0 |
| 0 |
| 0 |
| (338) |
| 0 |
| (338) | |
Dividends paid | - |
| 0 |
| 0 |
| 0 |
| 0 |
| (309) |
| (309) | |
Change in fair value of redeemable securities | - |
| 0 |
| (10,724) |
| 0 |
| 0 |
| 0 |
| (10,724) | |
Initial noncontrolling interests and adjustments related to |
|
|
|
|
|
|
|
|
|
|
|
|
| |
| business acquisitions | - |
| 0 |
| 0 |
| 0 |
| 0 |
| 2,491 |
| 2,491 |
Stock-based compensation expense | 21,113 |
| 0 |
| 5,710 |
| 0 |
| 0 |
| 0 |
| 5,710 | |
Shares withheld for payroll taxes | (2,922) |
| 1 |
| (194) |
| 0 |
| 0 |
| 0 |
| (193) | |
Settlement of stock-based compensation awards | 0 |
| 0 |
| (223) |
| 0 |
| 0 |
| 0 |
| (223) | |
Balance, September 26, 2020 | 142,456,318 | $ | 1,425 | $ | 11,044 | $ | 3,314,136 | $ | (171,332) | $ | 636,994 | $ | 3,792,267 | |
See accompanying notes.
6
HENRY SCHEIN, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands, except share and per share data)
(unaudited)
|
|
|
|
|
|
|
| Accumulated |
|
|
|
| ||
|
| Common Stock | Additional |
|
| Other |
|
| Total | |||||
|
| $.01 Par Value | Paid-in | Retained | Comprehensive | Noncontrolling | Stockholders' | |||||||
|
| Shares |
| Amount | Capital | Earnings | Income / (Loss) | Interests | Equity | |||||
Balance, December 26, 2020 | 142,462,571 | $ | 1,425 | $ | 0 | $ | 3,454,831 | $ | (108,084) | $ | 636,213 | $ | 3,984,385 | |
Net income (excluding $19,770 attributable to Redeemable |
|
|
|
|
|
|
|
|
|
|
|
|
| |
| noncontrolling interests from continuing operations) | - |
| 0 |
| 0 |
| 483,999 |
| 0 |
| 4,610 |
| 488,609 |
Foreign currency translation gain (loss) (excluding loss of $4,098 |
|
|
|
|
|
|
|
|
|
|
|
|
| |
| attributable to Redeemable noncontrolling interests) | - |
| 0 |
| 0 |
| 0 |
| (36,167) |
| 160 |
| (36,007) |
Unrealized gain from foreign currency hedging activities, |
|
|
|
|
|
|
|
|
|
|
|
|
| |
| net of tax of $1,819 | - |
| 0 |
| 0 |
| 0 |
| 5,146 |
| 0 |
| 5,146 |
Unrealized investment loss, net of tax benefit of $0 | - |
| 0 |
| 0 |
| 0 |
| (1) |
| 0 |
| (1) | |
Pension adjustment gain, net of tax of $450 | - |
| 0 |
| 0 |
| 0 |
| 1,466 |
| 0 |
| 1,466 | |
Dividends paid | - |
| 0 |
| 0 |
| 0 |
| 0 |
| (324) |
| (324) | |
Change in fair value of redeemable securities | - |
| 0 |
| (143,592) |
| 0 |
| 0 |
| 0 |
| (143,592) | |
Initial noncontrolling interests and adjustments related to |
|
|
|
|
|
|
|
|
|
|
|
|
| |
| business acquisitions | - |
| 0 |
| 0 |
| 0 |
| 0 |
| 6,966 |
| 6,966 |
Repurchase and retirement of common stock | (3,518,846) |
| (35) |
| (33,742) |
| (217,434) |
| 0 |
| 0 |
| (251,211) | |
Stock-based compensation expense | 299,572 |
| 3 |
| 57,697 |
| 0 |
| 0 |
| 0 |
| 57,700 | |
Shares withheld for payroll taxes | (113,754) |
| (2) |
| (7,546) |
| 0 |
| 0 |
| 0 |
| (7,548) | |
Settlement of stock-based compensation awards | 0 |
| 0 |
| 25 |
| 0 |
| 0 |
| 0 |
| 25 | |
Transfer of charges in excess of capital | - |
| 0 |
| 127,158 |
| (127,158) |
| 0 |
| 0 |
| 0 | |
Balance, September 25, 2021 | 139,129,543 | $ | 1,391 | $ | 0 | $ | 3,594,238 | $ | (137,640) | $ | 647,625 | $ | 4,105,614 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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 28, 2019 | 143,353,459 | $ | 1,434 | $ | 47,768 | $ | 3,116,215 | $ | (167,373) | $ | 632,093 | $ | 3,630,137 | |
Cumulative impact of adopting new accounting standards | - |
| 0 |
| 0 |
| (412) |
| 0 |
| 0 |
| (412) | |
Net income (excluding $7,253 attributable to Redeemable |
|
|
|
|
|
|
|
|
|
|
|
|
| |
| noncontrolling interests from continuing operations) | - |
| 0 |
| 0 |
| 261,161 |
| 0 |
| 3,668 |
| 264,829 |
Foreign currency translation gain (loss) (excluding loss of $10,999 |
|
|
|
|
|
|
|
|
|
|
|
|
| |
| attributable to Redeemable noncontrolling interests) | - |
| 0 |
| 0 |
| 0 |
| (6,572) |
| 255 |
| (6,317) |
Unrealized gain from foreign currency hedging activities, |
|
|
|
|
|
|
|
|
|
|
|
|
| |
| net of tax of $553 | - |
| 0 |
| 0 |
| 0 |
| 2,457 |
| 0 |
| 2,457 |
Unrealized investment loss, net of tax benefit of $1 | - |
| 0 |
| 0 |
| 0 |
| (5) |
| 0 |
| (5) | |
Pension adjustment gain, net of tax of $66 | - |
| 0 |
| 0 |
| 0 |
| 161 |
| 0 |
| 161 | |
Dividends paid | - |
| 0 |
| 0 |
| 0 |
| 0 |
| (816) |
| (816) | |
Purchase of noncontrolling interests | - |
| 0 |
| (1,597) |
| 0 |
| 0 |
| (701) |
| (2,298) | |
Change in fair value of redeemable securities | - |
| 0 |
| (5,141) |
| 0 |
| 0 |
| 0 |
| (5,141) | |
Initial noncontrolling interests and adjustments related to |
|
|
|
|
|
|
|
|
|
|
|
|
| |
| business acquisitions | - |
| 0 |
| 0 |
| 0 |
| 0 |
| 2,495 |
| 2,495 |
Repurchase and retirement of common stock | (1,200,000) |
| (12) |
| (10,949) |
| (62,828) |
| 0 |
| 0 |
| (73,789) | |
Stock-based compensation expense (credit) | 535,556 |
| 5 |
| (6,653) |
| 0 |
| 0 |
| 0 |
| (6,648) | |
Shares withheld for payroll taxes | (232,697) |
| (2) |
| (14,197) |
| 0 |
| 0 |
| 0 |
| (14,199) | |
Settlement of stock-based compensation awards | - |
| 0 |
| 164 |
| 0 |
| 0 |
| 0 |
| 164 | |
Separation of Animal Health business | - |
| 0 |
| 1,649 |
| 0 |
| 0 |
| 0 |
| 1,649 | |
Balance, September 26, 2020 | 142,456,318 | $ | 1,425 | $ | 11,044 | $ | 3,314,136 | $ | (171,332) | $ | 636,994 | $ | 3,792,267 | |
See accompanying notes.
7
HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
|
|
|
| Nine Months Ended | |||||
|
|
|
|
|
| September 25, |
| September 26, | ||
|
|
|
|
|
| 2021 |
| 2020 | ||
Cash flows from operating activities: |
|
|
|
|
|
| ||||
| Net income |
| $ | 508,379 |
| $ | 272,082 | |||
| Income from discontinued operations |
|
| 0 |
|
| 274 | |||
| Income from continuing operations |
|
| 508,379 |
|
| 271,808 | |||
| Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
| |||
|
|
| Depreciation and amortization |
|
| 150,833 |
|
| 138,515 | |
|
|
| Impairment charge on intangible assets |
|
| 0 |
|
| 2,149 | |
|
|
| Gain on sale of equity investment |
|
| (9,757) |
|
| 0 | |
|
|
| Stock-based compensation expense (credit) |
|
| 57,700 |
|
| (6,648) | |
|
|
| Provision for (benefit from) losses on trade and other accounts receivable |
|
| (8,795) |
|
| 34,590 | |
|
|
| Benefit from deferred income taxes |
|
| (725) |
|
| (48,193) | |
|
|
| Equity in earnings of affiliates |
|
| (17,550) |
|
| (7,808) | |
|
|
| Distributions from equity affiliates |
|
| 15,035 |
|
| 10,053 | |
|
|
| Changes in unrecognized tax benefits |
|
| (6,479) |
|
| (18,365) | |
|
|
| Other |
|
| (48) |
|
| 4,794 | |
|
|
| Changes in operating assets and liabilities, net of acquisitions: |
|
|
|
|
|
| |
|
|
|
| Accounts receivable |
|
| (83,101) |
|
| (199,858) |
|
|
|
| Inventories |
|
| (207,921) |
|
| (25,830) |
|
|
|
| Other current assets |
|
| (41,651) |
|
| (51,746) |
|
|
|
| Accounts payable and accrued expenses |
|
| 77,021 |
|
| 144,953 |
Net cash provided by operating activities from continuing operations |
|
| 432,941 |
|
| 248,414 | ||||
Net cash provided by operating activities from discontinued operations |
|
| 0 |
|
| 648 | ||||
Net cash provided by operating activities |
|
| 432,941 |
|
| 249,062 | ||||
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
| ||||
| Purchases of fixed assets |
|
| (48,706) |
|
| (37,799) | |||
| Payments related to equity investments and business |
|
|
|
|
|
| |||
|
| acquisitions, net of cash acquired |
|
| (415,365) |
|
| (52,208) | ||
| Proceeds from sale of equity investments |
|
| 9,757 |
|
| 12,000 | |||
| Payments for loan to affiliate |
|
| (5,980) |
|
| (1,451) | |||
| Other |
|
| (18,707) |
|
| (14,498) | |||
Net cash used in investing activities from continuing operations |
|
| (479,001) |
|
| (93,956) | ||||
Net cash used in investing activities from discontinued operations |
|
| 0 |
|
| 0 | ||||
Net cash used in investing activities |
|
| (479,001) |
|
| (93,956) | ||||
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
| ||||
| Net change in bank borrowings |
|
| (13,128) |
|
| 484,139 | |||
| Proceeds from issuance of long-term debt |
|
| 200,000 |
|
| 501,421 | |||
| Principal payments for long-term debt |
|
| (121,835) |
|
| (610,457) | |||
| Debt issuance costs |
|
| (2,013) |
|
| (3,683) | |||
| Debt extinguishment costs |
|
| 0 |
|
| (401) | |||
| Payments for repurchases and retirement of common stock |
|
| (251,211) |
|
| (73,789) | |||
| Payments for taxes related to shares withheld for employee taxes |
|
| (7,372) |
|
| (14,007) | |||
| Distributions to noncontrolling shareholders |
|
| (8,622) |
|
| (3,995) | |||
| Acquisitions of noncontrolling interests in subsidiaries |
|
| (50,292) |
|
| (14,934) | |||
| Proceeds from Henry Schein Animal Health Business |
|
| 0 |
|
| 139 | |||
Net cash provided by (used in) financing activities from continuing operations |
|
| (254,473) |
|
| 264,433 | ||||
Net cash used in financing activities from discontinued operations |
|
| 0 |
|
| (648) | ||||
Net cash provided by (used in) financing activities |
|
| (254,473) |
|
| 263,785 | ||||
Effect of exchange rate changes on cash and cash equivalents from continuing operations |
|
| (1,519) |
|
| 8,507 | ||||
Effect of exchange rate changes on cash and cash equivalents from discontinued operations |
|
| 0 |
|
| 0 | ||||
Net change in cash and cash equivalents from continuing operations |
|
| (302,052) |
|
| 427,398 | ||||
Net change in cash and cash equivalents from discontinued operations |
|
| 0 |
|
| 0 | ||||
Cash and cash equivalents, beginning of period |
|
| 421,185 |
|
| 106,097 | ||||
Cash and cash equivalents, end of period |
| $ | 119,133 |
| $ | 533,495 | ||||
See accompanying notes.
8
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)
105 million, respectively.ourthe accounts as well as thoseof HenrySchein, Inc. and all of our wholly-ownedmajority-owned subsidiaries. transactions are eliminatedin consolidation.Investments (“(“U.S. GAAP”) for interim financial information and Septemberand December 26, 2020, there were 0certain trade accounts receivablethat were restrictedcan only be used to settle0r were there$thethis VIE where theus.The consolidated financial statements reflect all adjustments considered necessary for a fair presentation of the consolidated results of operationsus were $financial position for the interim periods presented. All such adjustments are of a normal recurring nature. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 26, 2020 and with the information contained in our other publicly-available filings with the SEC.The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for the nine months ended September 25, 2021 are not necessarily indicative of the results to be expected for any other interim period or for the year ending December 25, 2021.In March 2020, the World Health Organization declared the Novel Coronavirus Disease 2019 (“COVID-19”) a pandemic. The COVID-19 pandemic 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 2020 and has continued into the third quarter of 2021 resulting in growth over the prior year driven by sales of personal protective equipment (“PPE”) and COVID-19 related products.9HENRY SCHEIN, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(in thousands, except per share data)(unaudited) vendorsupplier rebates; measurement offuture. In addition, the impact of COVID-19 had a material adverse effect on our business, results of operationsfuture and cash flows, primarily in the second quarter of 2020. In the latter half of the second quarter of 2020, dental and medical practices began to re-open worldwide, and continued to do so during the second half of 2020. During the first nine months of 2021, patient traffic levels returned to levels approaching pre-pandemic levels. 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 time.
ninethree months ended September 25, 2021,March 26, 8 to the consolidated financial statements included in7 of our Annual Report on Form 10-K for26, 2020,25, 2021, except as follows:27, 2020 26, 20212019-12, “Income Taxes” (Topic 740): Simplifying the Accounting 2021 – 08, “Accountingfor Income Taxes (“ASU 2019-12”). ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application ofsimplify U.S. GAAP for other areas of Topic 740 by clarifying and amending existing guidance. Our Contract Liabilities from Contracts with Customers”(Subtopic 805), as early adoption of this2019-12was permitted.ASU 2021 – 08 requires an acquirer to recognize and measurecontract assets and contractAugustMarch 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2020-06, “Debt—Debt with Conversion2020-04, “Reference RateOther Options” (Subtopic 470-20)exceptions for applying U.S. GAAP to contracts,hedging relationships and otherHedging—Hedging (Topic 815): Fair ValueHedging –Entity’s Own Equity” (Subtopic 815-40): Accountinga fair value hedge.This ASU expands the use of theConvertible Instruments and Contracts in an Entity’s Own Equity (“active2020-06”). 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 2020-062022 –2021. 2022, including interim periodswithin those fiscal
10
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)
25, 2021. Net Sales Three Months Ended Nine Months Ended September 25, 2021 September 25, 2021 North America International Global North America International Global Revenues: Health care distribution Dental $ 1,114,631 $ 708,263 $ 1,822,894 $ 3,287,021 $ 2,235,145 $ 5,522,166 Medical 1,163,799 23,013 1,186,812 3,006,699 77,978 3,084,677 Total health care distribution 2,278,430 731,276 3,009,706 6,293,720 2,313,123 8,606,843 Technology and value-added services 147,644 20,965 168,609 399,478 64,178 463,656 Total revenues $ 2,426,074 $ 752,241 $ 3,178,315 $ 6,693,198 $ 2,377,301 $ 9,070,499 Three Months Ended Nine Months Ended September 26, 2020 September 26, 2020 North America International Global North America International Global Revenues: Health care distribution Dental $ 1,008,836 $ 641,017 $ 1,649,853 $ 2,413,154 $ 1,653,067 $ 4,066,221 Medical 1,002,741 24,405 1,027,146 2,377,357 68,287 2,445,644 Total health care distribution 2,011,577 665,422 2,676,999 4,790,511 1,721,354 6,511,865 Technology and value-added services 120,949 17,406 138,355 327,374 48,173 375,547 Total excluding Corporate TSA revenues (1) 2,132,526 682,828 2,815,354 5,117,885 1,769,527 6,887,412 Corporate TSA revenues (1) 0 24,792 24,792 0 66,004 66,004 Total revenues $ 2,132,526 $ 707,620 $ 2,840,146 $ 5,117,885 $ 1,835,531 $ 6,953,416 26, 2020.RevenuerevenueNet sales by reportable segment and geography:(1)Corporate TSA revenues represents sales of certain animalarea:
11
(unaudited)
Three Months Ended Nine Months Ended September 25, September 26, September 25, September 26, 2021 2020 2021 2020 Net Sales: Health care distribution (1) Dental $ 1,822,894 $ 1,649,853 $ 5,522,166 $ 4,066,221 Medical 1,186,812 1,027,146 3,084,677 2,445,644 Total health care distribution 3,009,706 2,676,999 8,606,843 6,511,865 Technology and value-added services (2) 168,609 138,355 463,656 375,547 Total excluding Corporate TSA revenue 3,178,315 2,815,354 9,070,499 6,887,412 Corporate TSA revenues (3) 0 24,792 0 66,004 Total $ 3,178,315 $ 2,840,146 $ 9,070,499 $ 6,953,416 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, dental specialty products (including implant, orthodontic and endodontic products), diagnostic tests, infection-control products, PPE and vitamins. Our globalbusinessesgroups servepractitioners inbusinesses provide reportable segment providessoftware, technology and other value-addedvalue-consulting, and continuing education services for practitioners.(3)Corporate TSA revenues represents sales
|
|
|
|
| Three Months Ended |
| Nine Months Ended | ||||||||
|
|
|
|
| September 25, |
| September 26, |
| September 25, |
| September 26, | ||||
|
|
|
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Operating Income: |
|
|
|
|
|
|
|
|
|
|
|
| |||
| Health care distribution |
| $ | 179,275 |
| $ | 148,658 |
| $ | 558,968 |
| $ | 271,477 | ||
| Technology and value-added services |
|
| 31,546 |
|
| 39,013 |
|
| 92,127 |
|
| 82,626 | ||
|
| Total |
| $ | 210,821 |
| $ | 187,671 |
| $ | 651,095 |
| $ | 354,103 | |
12
(unaudited)
September 25, December 26, 2021 2020 Revolving credit agreement $ 0 $ 0 Other short-term bank credit lines 59,394 73,366 Total $ 59,394 $ 73,36657 – Debt
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 March 4, 2021, we repaid the outstanding obligations and terminated the lender commitments under our $700 million 364-day credit agreement, which was entered into on April 17, 2020. This facility was originally scheduled to mature on April 16, 2021.
13
(unaudited)
(unaudited
|
|
| September 25, |
| December 26, | ||
|
|
| 2021 |
| 2020 | ||
Private placement facilities |
| $ | 706,433 |
| $ | 613,498 | |
Note payable |
|
| 0 |
|
| 1,554 | |
Various collateralized and uncollateralized loans payable with interest, |
|
|
|
|
|
| |
| in varying installments through 2023 at interest rates |
|
|
|
|
|
|
| ranging from 2.45% to 4.27% at September 25, 2021 and |
|
|
|
|
|
|
| ranging from 2.62% to 4.27% at December 26, 2020 |
|
| 3,566 |
|
| 4,596 |
Finance lease obligations (see Note 6) |
|
| 5,179 |
|
| 5,961 | |
| Total |
|
| 715,178 |
|
| 625,609 |
Less current maturities |
|
| (9,638) |
|
| (109,836) | |
| Total long-term debt |
| $ | 705,540 |
| $ | 515,773 |
On March 5, 2021, we amended the private placement facilities to, among other things, (a) modify the financial covenant from being based on a net leverage ratio to a total leverage ratio and (b) restore the maximum maintenance total leverage ratio to 3.25x and remove the 1.00% interest rate increase triggered if the net leverage ratio were to exceed 3.0x.
On October 20, 2021, we amended our three private placement facilities with insurance companies and entered into a fourth private placement facility with another insurance company, increasing the total facilities amount to $1.5 billion and extending the maturity date of the existing facilities. The maturity date for our private placement facilities is October 20, 2026.
14
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)
Amount of Borrowing Borrowing Date of Borrowing Outstanding Rate Due Date January 20, 2012 (1) $ 7,143 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 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 100,000 2.35 September 2, 2030 June 2, 2021 100,000 2.48 June 2, 2031 June 2, 2021 100,000 2.58 June 2, 2033 Less: Deferred debt issuance costs (710) $ 706,433 (1) Annual repayments of approximately $7.1 million for this borrowing commenced on January 20, 2016.September 25, 2021March 26, 2022 are presented in the following table (in thousands):
On October 20,
15
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unrecognized tax benefits will change in thousands, except per share data)
(unaudited)
the next 12
Note 6 – 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 20 years, some ofmonths, which may result in a material impact
|
|
|
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
|
|
|
|
| September 25, |
| September 26, |
| September 25, |
| September 26, |
| ||||
|
|
|
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||
Operating lease cost: (1) |
| $ | 26,914 |
| $ | 21,343 |
| $ | 75,860 |
| $ | 65,413 |
| |||
Finance lease cost: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Amortization of right-of-use assets |
|
| 573 |
|
| 434 |
|
| 1,693 |
|
| 1,148 |
| |||
Interest on lease liabilities |
|
| 24 |
|
| 29 |
|
| 77 |
|
| 86 |
| |||
Total finance lease cost |
| $ | 597 |
| $ | 463 |
| $ | 1,770 |
| $ | 1,234 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Includes variable lease expenses. |
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Supplemental balance sheet information related to leases is as follows: |
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 25, |
| December 26, |
| ||
|
|
|
|
| 2021 |
| 2020 |
| ||
Operating Leases: |
|
|
|
|
|
|
| |||
Operating lease right-of-use assets |
| $ | 329,886 |
| $ | 288,847 |
| |||
|
|
|
|
|
|
|
|
|
|
|
Current operating lease liabilities |
|
| 77,383 |
|
| 64,716 |
| |||
Non-current operating lease liabilities |
|
| 270,152 |
|
| 238,727 |
| |||
| Total operating lease liabilities |
| $ | 347,535 |
| $ | 303,443 |
| ||
|
|
|
|
|
|
|
|
|
|
|
Finance Leases: |
|
|
|
|
|
|
| |||
Property and equipment, at cost |
| $ | 11,255 |
| $ | 10,683 |
| |||
Accumulated depreciation |
|
| (5,470) |
|
| (4,277) |
| |||
Property and equipment, net of accumulated depreciation |
| $ | 5,785 |
| $ | 6,406 |
| |||
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt |
| $ | 2,219 |
| $ | 2,420 |
| |||
Long-term debt |
|
| 2,960 |
|
| 3,541 |
| |||
| Total finance lease liabilities |
| $ | 5,179 |
| $ | 5,961 |
| ||
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Remaining Lease Term in Years: |
|
|
|
|
|
|
| |||
| Operating leases |
|
| 7.4 |
|
| 7.5 |
| ||
| Finance leases |
|
| 4.0 |
|
| 4.3 |
| ||
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Discount Rate: |
|
|
|
|
|
|
| |||
| Operating leases |
|
| 2.5 | % |
| 2.8 | % | ||
| Finance leases |
|
| 1.7 | % |
| 1.9 | % | ||
16
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)
Supplemental cash flow information related to leases is as follows: |
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended |
| |||
|
|
|
|
| September 25, |
| September 26, |
| ||
|
|
|
|
| 2021 |
| 2020 |
| ||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
| |||
| Operating cash flows for operating leases |
| $ | 62,363 |
| $ | 57,666 |
| ||
| Operating cash flows for finance leases |
|
| 67 |
|
| 76 |
| ||
| Financing cash flows for finance leases |
|
| 2,129 |
|
| 1,515 |
| ||
Right-of-use assets obtained in exchange for lease obligations: |
|
|
|
|
|
|
| |||
| Operating leases |
| $ | 101,192 |
| $ | 66,082 |
| ||
| Finance leases |
|
| 1,488 |
|
| 2,489 |
| ||
Maturities of lease liabilities are as follows: |
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 25, 2021 |
| |||
|
|
|
|
|
| Operating |
|
| Finance |
|
|
|
|
|
|
| Leases |
|
| Leases |
|
2021 |
| $ | 22,362 |
| $ | 699 |
| |||
2022 |
|
| 80,662 |
|
| 1,990 |
| |||
2023 |
|
| 57,878 |
|
| 1,015 |
| |||
2024 |
|
| 43,237 |
|
| 416 |
| |||
2025 |
|
| 38,621 |
|
| 355 |
| |||
Thereafter |
|
| 138,529 |
|
| 888 |
| |||
Total future lease payments |
|
| 381,289 |
|
| 5,363 |
| |||
Less: imputed interest |
|
| (33,754) |
|
| (184) |
| |||
Total |
| $ | 347,535 |
| $ | 5,179 |
| |||
As of Septemberquarter ended December 25, 2021, we have additional operating leases were notifiedby the IRS
17
(unaudited)
Note 7 – Redeemable Noncontrolling Interests
Some minority stockholders in certain of our subsidiaries have the right, at certain times, to require us to acquire their ownership interest in those entities at fair value. Accounting Standards Codification (“ASC”) Topic 480-10 is applicable for noncontrolling interests where we are or may be required to purchase all or a portion of the outstanding interest in a consolidated subsidiary from the noncontrolling interest holder under the terms of a put option contained in contractual agreements. The components of the change in the redeemable noncontrolling interests for the nine months ended September 25, 2021 and the year ended December 26, 2020 are presented in the following table:
|
|
| September 25, |
| December 26, | ||
|
|
| 2021 |
| 2020 | ||
Balance, beginning of period |
| $ | 327,699 |
| $ | 287,258 | |
Decrease in redeemable noncontrolling interests due to |
|
|
|
|
|
| |
| redemptions |
|
| (50,292) |
|
| (17,241) |
Increase in redeemable noncontrolling interests due to business |
|
|
|
|
|
| |
| acquisitions |
|
| 189,870 |
|
| 28,387 |
Net income attributable to redeemable noncontrolling interests |
|
| 19,770 |
|
| 13,363 | |
Dividends declared |
|
| (13,959) |
|
| (12,631) | |
Effect of foreign currency translation loss attributable to |
|
|
|
|
|
| |
| redeemable noncontrolling interests |
|
| (4,098) |
|
| (4,279) |
Change in fair value of redeemable securities |
|
| 143,592 |
|
| 32,842 | |
Balance, end of period |
| $ | 612,582 |
| $ | 327,699 | |
89 – Comprehensive IncomeComprehensive Legal Proceedings
reconcile net income to net cash provided by operatingactivities for all periods presented.In
|
|
|
| September 25, |
| December 26, | ||
|
|
|
| 2021 |
| 2020 | ||
Attributable to Redeemable noncontrolling interests: |
|
|
|
|
|
| ||
|
| Foreign currency translation adjustment |
| $ | (28,715) |
| $ | (24,617) |
|
|
|
|
|
|
|
|
|
Attributable to noncontrolling interests: |
|
|
|
|
|
| ||
|
| Foreign currency translation adjustment |
| $ | 395 |
| $ | 235 |
|
|
|
|
|
|
|
|
|
Attributable to Henry Schein, Inc.: |
|
|
|
|
|
| ||
| Foreign currency translation adjustment |
| $ | (112,732) |
| $ | (76,565) | |
| Unrealized loss from foreign currency hedging activities |
|
| (6,342) |
|
| (11,488) | |
| Unrealized investment gain |
|
| 0 |
|
| 1 | |
| Pension adjustment loss |
|
| (18,566) |
|
| (20,032) | |
|
| Accumulated other comprehensive loss |
| $ | (137,640) |
| $ | (108,084) |
|
|
|
|
|
|
|
|
|
Total Accumulated other comprehensive loss |
| $ | (165,960) |
| $ | (132,466) | ||
18
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)
The following table summarizesstock option activity under the components of comprehensive income, net of applicable taxes as follows:
|
| Three Months Ended |
| Nine Months Ended | ||||||||
|
| September 25, |
| September 26, |
| September 25, |
| September 26, | ||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Net income |
| $ | 169,474 |
| $ | 151,784 |
| $ | 508,379 |
| $ | 272,082 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss) |
|
| (39,762) |
|
| 37,588 |
|
| (40,105) |
|
| (17,316) |
Tax effect |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Foreign currency translation gain (loss) |
|
| (39,762) |
|
| 37,588 |
|
| (40,105) |
|
| (17,316) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) from foreign currency hedging |
|
|
|
|
|
|
|
|
|
|
|
|
activities |
|
| 4,708 |
|
| (10,490) |
|
| 6,965 |
|
| 3,010 |
Tax effect |
|
| (1,172) |
|
| 2,793 |
|
| (1,819) |
|
| (553) |
Unrealized gain (loss) from foreign currency hedging |
|
|
|
|
|
|
|
|
|
|
|
|
activities |
|
| 3,536 |
|
| (7,697) |
|
| 5,146 |
|
| 2,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized investment gain (loss) |
|
| 3 |
|
| 2 |
|
| (1) |
|
| (6) |
Tax effect |
|
| (1) |
|
| 0 |
|
| 0 |
|
| 1 |
Unrealized investment gain (loss) |
|
| 2 |
|
| 2 |
|
| (1) |
|
| (5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension adjustment gain (loss) |
|
| 893 |
|
| (471) |
|
| 1,916 |
|
| 227 |
Tax effect |
|
| (269) |
|
| 133 |
|
| (450) |
|
| (66) |
Pension adjustment gain (loss) |
|
| 624 |
|
| (338) |
|
| 1,466 |
|
| 161 |
Comprehensive income |
| $ | 133,874 |
| $ | 181,339 |
| $ | 474,885 |
| $ | 257,379 |
Plans
The change in the unrealized gain (loss) from foreign currency hedging activities during the three and nine months ended September 25, 2021, comparedMarch 26,
activity of our unvested RSUs for further information.
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 ninethree months ended September 25, 2021 and nine months ended SeptemberMarch 26, 2020 was primarily impacted by changes in foreign currency exchange rates 2022:
period
The following table summarizes our total comprehensive income, net
|
|
| Three Months Ended |
| Nine Months Ended | ||||||||
|
|
| September 25, |
| September 26, |
| September 25, |
| September 26, | ||||
|
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Comprehensive income attributable to |
|
|
|
|
|
|
|
|
|
|
|
| |
| Henry Schein, Inc. |
| $ | 131,425 |
| $ | 169,616 |
| $ | 454,443 |
| $ | 257,202 |
Comprehensive income attributable to |
|
|
|
|
|
|
|
|
|
|
|
| |
| noncontrolling interests |
|
| 1,380 |
|
| 4,354 |
|
| 4,770 |
|
| 3,923 |
Comprehensive income (loss) attributable to |
|
|
|
|
|
|
|
|
|
|
|
| |
| Redeemable noncontrolling interests |
|
| 1,069 |
|
| 7,369 |
|
| 15,672 |
|
| (3,746) |
Comprehensive income |
| $ | 133,874 |
| $ | 181,339 |
| $ | 474,885 |
| $ | 257,379 | |
19
$
(unaudited)
Note 9 – 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. Fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs).
The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described as follows:
• Level 1— Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date.
• Level 2— Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
• Level 3— Inputs that are unobservable for the asset or liability.
The following section describes the fair values of our financial instruments and the methodologies that we used to measure their fair values.
Investments and notes receivable
There are no quoted market prices available for investments in unconsolidated affiliates and notes receivable; however, we believe the carrying amounts are a reasonable estimate of fair value based on the interest rates in the applicable markets.
Debt
The fair value of our debt (including bank credit lines) is classified as Level 3 within the fair value hierarchy as of September 25, 2021 and December 26, 2020 was estimated at $774.6 million and $699.0 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 related to certain intercompany loans, certain forecasted inventory purchase commitments with foreign suppliers, foreign currency forward contracts to hedge a portion of our euro-denominated foreign operations which are designated as net investment hedges and a total return swap for the purpose of economically hedging our unfunded non-qualified supplemental retirement plan and our deferred compensation plan.
20
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)
The fair values for the majority of our foreign currency derivative contracts are obtained by comparing our contract rate to a published forward price of the underlying market rates, which is based on market rates for comparable transactions and are classified within Level 2 of the fair value hierarchy. See Note 14-Derivatives and Hedging Activities
for further information.
Redeemable noncontrolling interests
The values for Redeemable noncontrolling interests are classified within Level 3 of the fair value hierarchy and are based on recent transactions and/or implied multiples of earnings. See Note 7–Redeemable Noncontrolling Interests
for additional information.
The following table presents our assets and liabilities that are measured and recognized at fair value on a recurring basis classified under the appropriate level of the fair value hierarchy as of September 25, 2021 and December 26, 2020:
|
|
|
| September 25, 2021 | ||||||||||
|
|
|
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||
| Derivative contracts |
| $ | 0 |
| $ | 1,141 |
| $ | 0 |
| $ | 1,141 | |
|
| Total assets |
| $ | 0 |
| $ | 1,141 |
| $ | 0 |
| $ | 1,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||
| Derivative contracts |
| $ | 0 |
| $ | 1,905 |
| $ | 0 |
| $ | 1,905 | |
| Total return swaps |
|
| 0 |
|
| 408 |
|
| 0 |
|
| 408 | |
|
| Total liabilities |
| $ | 0 |
| $ | 2,313 |
| $ | 0 |
| $ | 2,313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interests |
| $ | 0 |
| $ | 0 |
| $ | 612,582 |
| $ | 612,582 | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 26, 2020 | ||||||||||
|
|
|
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||
| Derivative contracts |
| $ | 0 |
| $ | 1,868 |
| $ | 0 |
| $ | 1,868 | |
| Total return swaps |
|
| 0 |
|
| 1,565 |
|
| 0 |
|
| 1,565 | |
|
| Total assets |
| $ | 0 |
| $ | 3,433 |
| $ | 0 |
| $ | 3,433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||
| Derivative contracts |
| $ | 0 |
| $ | 11,765 |
| $ | 0 |
| $ | 11,765 | |
|
| Total liabilities |
| $ | 0 |
| $ | 11,765 |
| $ | 0 |
| $ | 11,765 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interests |
| $ | 0 |
| $ | 0 |
| $ | 327,699 |
| $ | 327,699 | ||
21
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)
23
Note 10 – Business Acquisitions
Acquisitions
We completed acquisitions during the nine months ended September 25, 2021 which were immaterial to our financial statements. The acquisitions that we completed included companies within our health care distribution and technology and value-added services segments. The initial ownership interest we acquired in these companies ranged from 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, and business analytics and intelligence software.
The following table summarizes the estimated fair value, as of the date of acquisition, of consideration paid and net assets acquired for acquisitions during the nine months ended September 25, 2021. 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.
Acquisition consideration: |
|
|
Cash | $ | 435,216 |
Redeemable noncontrolling interests |
| 179,086 |
Total consideration |
| 614,302 |
|
|
|
Identifiable assets acquired and liabilities assumed: |
|
|
Current assets |
| 158,657 |
Intangible assets |
| 258,501 |
Other noncurrent assets |
| 38,519 |
Current liabilities |
| (62,176) |
Deferred income taxes |
| (17,580) |
Other noncurrent liabilities |
| (38,271) |
Total identifiable net assets |
| 337,650 |
Goodwill |
| 284,151 |
Total net assets acquired | $ | 621,801 |
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 income taxes and other current and long-term assets and liabilities. 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, estimated customer attrition and projected cash flows. These assumptions are forward-looking and could be affected by future economic and market conditions.
Certain prior owners of acquired subsidiaries are eligible to receive additional 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. Any adjustments to these accrual amounts are recorded in our consolidated statements of income. For the nine months ended September 25, 2021 and September 26, 2020, there were no material adjustments recorded in our consolidated statements of income relating to changes in estimated contingent purchase price liabilities.
22
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)
our subsidiaries have the right,PlansRedeemable Noncontrolling InterestsRestructuringOn November 20, 2019,at certain times, to require us to acquirecommitted are or may be requiredto purchase all or a contemplated restructuring initiative intended to mitigate stranded costs associated withportion of the Animal Health Spin-off and to rationalize operations and to provide expense efficiencies. These activities were originally expected to be completed byendnoncontrollinginterest holder under the terms of 2020. In lighta putchanges tochange in the business environment brought on by the COVID-19 pandemic, we extended such activities to the end of 2021.Duringredeemable noncontrollingSeptember March 26, 2022 and the year ended December25, 2021 are presented in the
We are currently unable in good faithdirectly as an adjustment 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.
stockholders’
equity.
|
|
|
|
|
| Facility |
|
|
|
|
|
| |
|
|
| Severance |
| Closing |
|
|
|
|
|
| ||
|
|
| Costs |
| Costs |
| Other |
| Total | ||||
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 | |
Provision |
|
| 3,234 |
|
| (105) |
|
| 231 |
|
| 3,360 | |
Payments and other adjustments |
|
| (13,746) |
|
| 10 |
|
| (332) |
|
| (14,068) | |
Balance, September 25, 2021 |
| $ | 2,102 |
| $ | 300 |
| $ | 3 |
| $ | 2,405 | |
The following table shows, by reportable segment, the net amounts expensed and paid for restructuring costs that were incurred during the nine months ended September 25, 2021 and during our 2020 fiscal year and the remaining accrued balance of restructuring costs as of September 25, 2021:
|
|
|
|
|
| Technology and |
|
| ||
|
|
| Health Care |
| Value-Added |
|
|
| ||
|
|
| Distribution |
| Services |
| Total | |||
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 |
| $ | 13,113 | |
Provision |
|
| 2,830 |
|
| 530 |
|
| 3,360 | |
Payments and other adjustments |
|
| (13,563) |
|
| (505) |
|
| (14,068) | |
Balance, September 25, 2021 |
| $ | 2,091 |
| $ | 314 |
| $ | 2,405 | |
23
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)
Note 12 – Earnings Per Share
Basic earnings per share is computed by dividing net income attributable by the weighted-average number:
A reconciliation of shares used in calculating earnings per basic and diluted share follows:
|
|
| Three Months Ended |
| Nine Months Ended | ||||
|
|
| September 25, |
| September 26, |
| September 25, |
| September 26, |
|
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
Basic |
| 139,377 |
| 142,362 |
| 140,661 |
| 142,553 | |
Effect of dilutive securities: |
|
|
|
|
|
|
|
| |
| Stock options, restricted stock and restricted stock units |
| 1,702 |
| 729 |
| 1,518 |
| 755 |
| Diluted |
| 141,079 |
| 143,091 |
| 142,179 |
| 143,308 |
24
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)
Note 13 – Income Taxes
Forforeign currency translation loss during the ninethree months ended September 25, 2021 our effective tax rate was 24.2% compared to 20.0% for the prior year period. The difference between our effective tax ratesMarch26, 2022 and the federal statutory tax rate for the ninethree months ended September 25, March 27,
The American Rescue Plan Act of 2021 (“ARPA”) was signed into law on March 11, 2021. The ARPA included a corporate income tax provision to further limit the deductibility of compensation under Section 162(m) for tax years starting after December 31, 2026. Section 162(m) generally limits the deductibility of compensation paid to covered employees of publicly held corporations. Covered employees include the CEO, CFO and the three highest paid officers. The ARPA expands the group of covered employees to additionally include five of the highest paid employees.
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 carryover and carryback rules. We have analyzed the income tax provisions of the CARES Act and have accounted for the impact in the nine months ended September 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.
The total amount of unrecognized tax benefits, which are included in “Other liabilities” within our consolidated balance sheets, as of September 25, 2021 was approximately $79.0 million, of which $64.3 million 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.
The tax years subject to examination by major tax jurisdictions include years 2017 and forward by the U.S Internal Revenue Service (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 2016. During the quarter ended June 26, 2021 we reached a resolution with the Appellate Division for all remaining outstanding issues for 2012 and 2013. The resolution did not have a material impact to our consolidated financial statements. We reached a settlement with the U.S. Competent Authority to resolve certain transfer pricing issues related to 2012 and 2013 in the quarter ended December 28, 2019. 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 was 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 credits were approximately $(2.2) million for the nine months ended September 25, 2021, and $(1.1) million for the nine months ended September 26, 2020. The total amount of accrued interest is included in “Other liabilities,” and was approximately $11.7 million as of September 25, 2021 and $14.0 million as of December 26, 2020. NaN penalties were accrued for the periods presented.
25
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)
Note 14 – Derivatives and Hedging Activities
We are exposed to market 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 risk of the derivative counterparties. We attempt to minimize these risks by primarily using foreign currency forward contractsEuro, British Pound, Brazilian
During 2019 we entered into foreign currency forward contracts to hedge a portion of our euro-denominated foreign operations which are designated as net investment hedges. These net investment hedges offset the change in the U.S. dollar value of our investment 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 this net investment hedge, which matures on November 16, 2023, is approximately €200 million. During the three months ended September 25, 2021 and September 26, 2020, we recognized approximately $1.1 million and $1.2 million, respectively, of interest savings as a result of this net investment hedge. During the nine months ended September 25, 2021 and September 26, 2020, we recognized approximately $3.3 and $3.6 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 supplemental retirement plan (“SERP”) and our deferred compensation plan (“DCP”). This swap will offset changes in our SERP and DCP liabilities. At the inception, the notional value of the investments in these plans was $43.4 million. At September 25, 2021, the notional value of the investments in these plans was $86.0 million. At September 25, 2021, the financing blended rate for this swap was based on LIBOR of 0.08% plus 0.47%, for a combined rate of 0.55%. For the three months and nine months ended September 25, 2021, we have recorded a gain, within the selling, general and administrative line item in our consolidated statement of income, of approximately $2.0 million and $10.1 million, respectively, net of transaction costs, related to this undesignated swap. For the three months and nine months ended September 26, 2020, we have recorded a gain, within the selling, general and administrative line item in our consolidated statement of income, of approximately $3.8 million and $14.2 million, respectively, net of transaction costs, related to this undesignated swap. This swap is expected to be renewed on an annual basis after its current expiration date of March 29, 2022, and is expected to result in a neutral impact to our results of operations.
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.
26
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)
Note 15 – Stock-Based Compensation
Our accompanying consolidated statements of income reflect pre-tax stock-based compensation expense of $27.5 million ($20.9 million after-tax) and $57.7 million ($43.8 million after-tax) for the three and nine months ended September 25, 2021, respectively. For the three and nine months ended September 26, 2020 we recorded pre-tax stock-based compensation expense of $5.7 million ($4.1 million after-tax) and a credit of $6.6 million ($5.3 million after-tax), respectively. The $6.6 million credit for stock-based compensation during the nine months ended September 26, 2020 reflected our reduced estimate in expected achievement of performance-based targets resulting from the impact of COVID-19.
Our accompanying consolidated statements of cash flows present our stock-based compensation expense (credit) 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 nine months ended September 25, 2021 and September 26, 2020, respectively.
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 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 under the terms of our 2020 Stock Incentive Plan and our 2015 Non-Employee Director Stock Incentive Plan (together, the “Plans”). The Plans are administered by the Compensation Committee of the Board of Directors (the “Compensation Committee”). Historically, equity-based awards have been granted solely in the form of restricted stock units (“RSUs”). However, beginning in 2021, our equity-based awards have been granted in the form of RSUs and non-qualified stock options.
Grants of RSUs are stock-based awards granted to recipients with specified vesting provisions. In the case of RSUs, common stock is generally delivered on or following satisfaction of vesting conditions. We issue RSUs 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 RSUs that vest based on our achieving specified performance measurements and the recipient’s continued service over time (primarily three-year cliff vesting). For these RSUs, we recognize the cost as compensation expense on a straight-line basis.
During the three months ended March 27, 2021, as a result of the continuing economic risk and uncertainty resulting from the ongoing COVID-19 pandemic, the Compensation Committee decided to adjust the form of awards granted under our 2021 long-term incentive program for our 2021 fiscal year in a manner that focuses on our long-term value by granting stock options and time-based RSUs rather than performance-based RSUs. Stock options are awards that allow the recipient to purchase shares of our common stock at a fixed price following vesting of the stock options. Stock options are granted at an exercise price equal to our closing stock price on the date of grant. Stock options issued during 2021 vest one-third per year based on the recipient’s continued service, subject to the terms and conditions of the Plans, are fully vested three years from the grant date and have a contractual term of ten years from the grant date, subject to earlier termination of the term upon certain events. Compensation expense for these stock options is recognized using a graded vesting method. We estimate the fair value of stock options using the Black-Scholes valuation model.
27
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)
In addition to equity-based awards under the 2021 long-term incentive program under the 2020 Stock Incentive Plan, 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. These time-based RSU awards will vest 50% 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 Plans, and are recorded as compensation expense using a graded vesting method.
With respect to time-based RSUs, we estimate the fair value on the date of grant based on our closing stock price at time of grant. With respect to performance-based RSUs, the number of shares that ultimately vest and are received by the recipient is based upon our performance as measured against specified targets over a specified period, as determined by the Compensation Committee. Although there is no guarantee that performance targets will be achieved, we estimate the fair value of performance-based RSUs based on our closing stock price at time of grant.
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 accounting principles or in applicable laws or regulations, changes in income tax rates in certain markets 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.
Total unrecognized compensation cost related to unvested awards as of September 25, 2021 was $85.7 million, which is expected to be recognized over a weighted-average period of approximately 2.2 years.
The following weighted-average assumptions were used in determining the most recent fair values of stock options granted using the Black-Scholes valuation model:
|
|
| |
|
|
| |
|
|
| |
|
| ||
We have not declared cash dividends on our stock in the past and we do not anticipate declaring cash dividends in the foreseeable future. The expected stock price volatility is based on implied volatilities from traded options on our stock, historical volatility of our stock, and other factors. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant in conjunction with considering the expected life of options. The six year expected life of the options was determined using the simplified method for estimating the expected term as permitted under SAB Topic 14. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by recipients of stock options, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made by us.
28
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)
The following table summarizes stock option activity under the Plans during the nine months ended September 25, 2021:
|
|
|
|
|
|
| Weighted |
|
|
|
|
|
|
|
|
|
| Average |
|
|
|
|
|
|
| Weighted |
| Remaining |
|
|
| |
|
|
|
| Average |
| Contractual |
| Aggregate | ||
|
|
|
| Exercise |
| Life in |
| Intrinsic | ||
|
| Shares |
| Price |
| Years |
| Value | ||
Outstanding at beginning of period |
| 0 |
| $ | 0 |
|
|
|
|
|
Granted |
| 807 |
|
| 63.05 |
|
|
|
|
|
Exercised |
| 0 |
|
| 0 |
|
|
|
|
|
Forfeited |
| (6) |
|
| 62.99 |
|
|
|
|
|
Outstanding at end of period |
| 801 |
| $ | 63.05 |
| 9.4 |
| $ | 15.05 |
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of period |
| 1 |
| $ | 62.71 |
|
|
|
|
|
The following tables summarize the activity of our unvested RSUs for the nine months ended September 25, 2021:
|
| Time-Based Restricted Stock Units | |||||||
|
|
|
| Weighted Average |
|
|
| ||
|
|
|
| Grant Date Fair |
|
| Intrinsic Value | ||
|
| Shares/Units |
| Value Per Share |
|
| Per Share | ||
Outstanding at beginning of period |
| 1,459 |
| $ | 57.61 |
|
|
|
|
Granted |
| 833 |
|
| 63.24 |
|
|
|
|
Vested |
| (266) |
|
| 66.85 |
|
|
|
|
Forfeited |
| (32) |
|
| 60.13 |
|
|
|
|
Outstanding at end of period |
| 1,994 |
| $ | 58.77 |
|
| $ | 78.10 |
|
|
|
|
|
|
|
|
|
|
|
| Performance-Based Restricted Stock Units | |||||||
|
|
|
| Weighted Average |
|
|
| ||
|
|
|
| Grant Date Fair |
|
| Intrinsic Value | ||
|
| Shares/Units |
| Value Per Share |
|
| Per Share | ||
Outstanding at beginning of period |
| 136 |
| $ | 53.52 |
|
|
|
|
Granted |
| 531 |
|
| 58.92 |
|
|
|
|
Vested |
| (84) |
|
| 52.35 |
|
|
|
|
Forfeited |
| (14) |
|
| 59.34 |
|
|
|
|
Outstanding at end of period |
| 569 |
| $ | 59.65 |
|
| $ | 78.10 |
Note 16 – Supplemental Cash Flow Information
Cash paid for interest andtotal comprehensive income, net ofapplicable taxes, was:
|
| Nine Months Ended | ||||
|
| September 25, |
| September 26, | ||
|
| 2021 |
| 2020 | ||
Interest |
| $ | 21,959 |
| $ | 29,551 |
Income taxes |
|
| 178,804 |
|
| 164,575 |
During the nine months ended September 25, 2021 and September 26, 2020, we had a $7.0 million and $3.0 million of non-cash net unrealized gains related to foreign currency hedging activities, respectively.
29
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)
Plans of Restructuring1713 – Legal Proceedings
May 29, 2018, an amended complaintNovember 20, 2019, we committed to a contemplated restructuringinitiative intended to mitigate stranded costsfiled $
In addition to the County of Summit Action, Henry Schein and/or one or more of its affiliated companieseffect would have been named antidilutive.
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 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 Securities Exchange Act of 1934, as amended, and Securities and Exchange Commission 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$
foreign currency hedging activities,respectively.
30
(unaudited)
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. A second similar complaint, Stegmann v. Wolin, was filed in the same court on March 30, 2021, which did not name the Company as a defendant. We expect a consolidated amended complaint to be filed andPlaintiffs have agreed to dismiss Henry Schein from the consolidated amended complaint without prejudice; we expect the parties to submit a proposed order to the Court reflecting this agreement.
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 September 25, 2021, 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.
31
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)
1816 – Related Party Transactions
On February 7, 2019 (the “Distribution Date”), we completed the separation (the “Separation”) and subsequent merger (“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”). This was accomplished by 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 subsidiary of Covetrus. 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 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”).
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 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. Services provided under this transition services agreement ended in December 2020. During the three and nine months ended September 26, 2020, we recorded approximately $3.9 million and $12.7 million, respectively, of fees for these services. Covetrus also purchased certain products from us pursuant to the transition services agreement, which ended in December 2020. During the three and nine months ended September 26, 2020, net sales to Covetrus were approximately $24.8 million and $66.0 million, respectively.
31.0 and nine September 25,March 26, 2022 and March 27, 2021, we recorded $7.8 $23.4 $ During the three and nine months ended September 26, 2020, we recorded $7.8 million and $23.4 million, respectively, in connection with costs related to this royalty agreement. As of SeptemberMarch 26, 2022 and December 25, 2021, and December 26, 2020, Henry(payable) receivable balance due (to) from Internet Brands of $(14.7) $$4.7 $and nine months ended September 25, March 26, 2022 and March 27,2021, we recorded net sales of $17.7 $$50.9 $and nine months ended SeptemberMarch 26, 2020, 2022 and March 27,2021,recorded net sales of $13.4 purchased $$38 million, respectively, to such entities. During the three and nine months ended September 25, 2021, we purchased $4.8 million and $13.9 $ During the threeAt March 26, 2022 and nine months ended September 26, 2020,December 25,purchased $4.3 had in aggregate $$10.3 million, respectively, from such entities. At September 25, 2021 and December 26, 2020, in the aggregate we had $48.3 million and $36.9 $$9.6 $$8.7 $
32
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
Cautionary Note Regarding Forward-Looking Statements
33
28
Recent Developments
In March 2020, the World Health Organization declared COVID-19 a pandemic.
Our consolidated financial statements reflect estimates and assumptions made by us that affect, among other things, our goodwill, long-lived asset and indefinite-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, the2021.The impact of COVID-19 had a
Recently the federal government has issued executive orders for government contractors regarding COVID-19 vaccine mandates. The federal government has also indicated that the Occupational Safety and Health Administration intends to issue regulations concerning vaccine mandates for employers. In addition, state governments and some customers have also issued vaccine requirements for workers in their jurisdictions or who may service their accounts, and some state regulations contradict the federal vaccine mandates. Also, at this time, it remains unclear whether international jurisdictions will impose vaccine mandates or additional COVID-19 regulations. It is possible that a significant number of our employees have not been vaccinated, and in the event of a vaccine mandate some of those employees may seek exemptions or otherwise resist vaccination. The imposition of vaccine mandates could potentially cause labor shortages if employees refuse to get vaccinated and their employment is terminated, either voluntarily or involuntarily. Such labor shortages could reduce our sales and/or affect our ability to fulfill customer orders, impacting our revenue and profitability. Furthermore, managing and tracking vaccination status and ongoing testing for exempt and/or unvaccinated employees could potentially increase our costs, as could addressing inconsistent mandates. COVID-19 vaccine mandates and similar regulations have the potential to significantly adversely affect our business, as the nature and effect of such mandates are uncertain at this time.
34
Executive-Level Overview
territories.Our broad
Our global
35
growth of HMOs, group practices, other managed care accounts and collectivebuying groups, which, in addition to
36
businesses.
As industry consolidation continues, we believe that we are positionedto capitalize on this trend, as we believe we
37
devices and/or medical treatments or services, are ongoing.Many of these laws and regulations are subject to
Failurefailure to comply with lawsuch laws or regulations could have amaterial adverse effect on our business.
15, 2022.
Results of Operations
|
|
|
| Three Months Ended |
| Nine Months Ended | ||||||||
|
|
|
| September 25, |
| September 26, |
| September 25, |
| September 26, | ||||
|
|
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Operating results: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Net sales |
| $ | 3,178,315 |
| $ | 2,840,146 |
| $ | 9,070,499 |
| $ | 6,953,416 | ||
Cost of sales |
|
| 2,266,170 |
|
| 2,085,878 |
|
| 6,377,752 |
|
| 4,998,868 | ||
| Gross profit |
|
| 912,145 |
|
| 754,268 |
|
| 2,692,747 |
|
| 1,954,548 | |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||
| Selling, general and administrative |
|
| 701,499 |
|
| 559,605 |
|
| 2,038,292 |
|
| 1,572,732 | |
| Restructuring costs (credits) |
|
| (175) |
|
| 6,992 |
|
| 3,360 |
|
| 27,713 | |
|
| Operating income |
| $ | 210,821 |
| $ | 187,671 |
| $ | 651,095 |
| $ | 354,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense, net |
| $ | (4,738) |
| $ | (10,516) |
| $ | (13,596) |
| $ | (24,138) | ||
Gain on sale of equity investment |
|
| 7,318 |
|
| - |
|
| 7,318 |
|
| - | ||
Net income from continuing operations |
|
| 169,474 |
|
| 151,813 |
|
| 508,379 |
|
| 271,808 | ||
Income (loss) from discontinued operations |
|
| - |
|
| (29) |
|
| - |
|
| 274 | ||
Net income attributable to Henry Schein, Inc. |
|
| 162,286 |
|
| 141,697 |
|
| 483,999 |
|
| 261,161 | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended | ||||
|
|
|
|
|
|
|
|
|
| September 25, |
| September 26, | ||
|
|
|
|
|
|
|
|
|
| 2021 |
| 2020 | ||
Cash flows: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Net cash provided by operating activities from continuing operations |
| $ | 432,941 |
| $ | 248,414 | ||||||||
Net cash used in investing activities from continuing operations |
|
| (479,001) |
|
| (93,956) | ||||||||
Net cash provided by (used in) financing activities from continuing operations |
|
| (254,473) |
|
| 264,433 | ||||||||
38
sales
On November 20, 2019, we committed to a contemplated restructuringinitiative intended to mitigate stranded costs
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.
39
Three Months Ended September 25, 2021March 26, 2022 Compared to Three Months Ended September 26, 2020
March 27, 2021
|
|
|
| September 25, |
| % of |
| September 26, |
| % of |
| Increase / (Decrease) | ||||||||
|
|
|
| 2021 |
| Total |
| 2020 |
| Total |
| $ |
| % | ||||||
Health care distribution (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| Dental |
| $ | 1,822,894 |
| 57.4 | % |
| $ | 1,649,853 |
| 58.1 | % |
| $ | 173,041 |
| 10.5 | % | |
| Medical |
|
| 1,186,812 |
| 37.3 |
|
|
| 1,027,146 |
| 36.2 |
|
|
| 159,666 |
| 15.5 |
| |
|
| Total health care distribution |
|
| 3,009,706 |
| 94.7 |
|
|
| 2,676,999 |
| 94.3 |
|
|
| 332,707 |
| 12.4 |
|
Technology and value-added services (2) |
|
| 168,609 |
| 5.3 |
|
|
| 138,355 |
| 4.9 |
|
|
| 30,254 |
| 21.9 |
| ||
|
| Total excluding Corporate TSA revenue |
|
| 3,178,315 |
| 100.0 |
|
|
| 2,815,354 |
| 99.2 |
|
|
| 362,961 |
| 12.9 |
|
Corporate TSA revenue (3) |
|
| - |
| - |
|
|
| 24,792 |
| 0.8 |
|
|
| (24,792) |
| - |
| ||
|
| Total |
| $ | 3,178,315 |
| 100.0 | % |
| $ | 2,840,146 |
| 100.0 | % |
| $ | 338,169 |
| 11.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The (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. See Note-18 Related Party Transactions for further information.11.9%8.7% increase in net sales includes an increase of 11.1%10.1% in local currency revenue (7.2%sales (7.7% increase in internally
40
The 21.9%23.4% increase in technology and value-added services net sales includesan increase of 21.0%24.1%in local
cycle management solutions,
and also from cloud-based solutions that
|
|
| September 25, |
| Gross |
| September 26, |
| Gross |
| Increase / (Decrease) | ||||||||
|
|
| 2021 |
| Margin % |
| 2020 |
| Margin % |
| $ |
| % | ||||||
Health care distribution |
| $ | 800,516 |
| 26.6 | % |
| $ | 653,173 |
| 24.4 | % |
| $ | 147,343 |
| 22.6 | % | |
Technology and value-added services |
|
| 111,629 |
| 66.2 |
|
|
| 100,272 |
| 72.5 |
|
|
| 11,357 |
| 11.3 |
| |
| Total excluding Corporate TSA revenues |
|
| 912,145 |
| 28.7 |
|
|
| 753,445 |
| 26.8 |
|
|
| 158,700 |
| 21.1 |
|
Corporate TSA revenues |
|
| - |
| - |
|
|
| 823 |
| 3.3 |
|
|
| (823) |
| - |
| |
| Total |
| $ | 912,145 |
| 28.7 |
|
| $ | 754,268 |
| 26.6 |
|
| $ | 157,877 |
| 20.9 |
|
follows:
supplierrebates.research and development.During December 2020, our previous transition services agreement with Covetrus, in connection with the completion of the Animal-Health Spin-off, concluded. Under this agreement, Covetrus had agreed to purchase certain products from us at a mark-up that ranged from 3% to 6% of our product cost to cover handling costs. sales of pharmaceutical products are generally at lower gross profit margins than other products. Conversely, sales of our private label products achievegross profit margins that areaverage. average total gross profit margins of all products.With respect to customer mix, sales to our large-grouplarge-$147.3$68 million, or 22.6%8.6%, primarilydue to the increase in net sales Health care distribution gross profit margin increased primarily due to lower adjustments recorded for PPE inventory. Such adjustments to inventory may recur and adversely impact gross profit margins in future periods, although we do not expect further material inventory adjustments in 2021. The increaseinIn addition, health care distribution gross profit margin is also attributable to an increase in vendorbenefitted from supplier rebatesduringthird quarter of 2021 due to increased purchase volumes.The overall increasein our health care distribution gross profit is attributable to$54.4$37 million from internally generated revenue, a $67.3 sales, $19million increase inadditional gross profit due to thefroma $25.6 million increase in gross profit from acquisitions.$11.4$14 million, or 11.3%13.8%, due to a $7.1$10 million increase inrevenuesales and $11.1$8 million additional gross profit from acquisitions,partially offset by a decrease of $6.8rates. rates due to product mix.Technology and value-added services gross profit margin66.2%64.9% from 72.5%70.3% primarily due to lower gross margins of recently acquiredcompanies in thesector and certain transactions with the U.S. federal government.sector.
41
|
|
|
|
|
| % of |
|
|
|
| % of |
|
|
|
|
|
| ||
|
|
| September 25, |
| Respective |
| September 26, |
| Respective |
| Increase | ||||||||
|
|
| 2021 |
| Net Sales |
| 2020 |
| Net Sales |
| $ |
| % | ||||||
Health care distribution |
| $ | 621,241 |
| 20.6 | % |
| $ | 505,338 |
| 18.9 | % |
| $ | 115,903 |
| 22.9 | % | |
Technology and value-added services |
|
| 80,083 |
| 47.5 |
|
|
| 61,259 |
| 44.3 |
|
|
| 18,824 |
| 30.7 |
| |
| Total |
| $ | 701,324 |
| 22.1 |
|
| $ | 566,597 |
| 19.9 |
|
| $ | 134,727 |
| 23.8 |
|
follows:
payroll and payrollrelated costs and travel and convention Other Expense, Netcredits costsin the three months ended September 25, 2021 and restructuring costs in the three months ended September 26, 2020)March 27,$134.7$68 million, or 23.8%10.2%. In the prior year, there were significant cost-saving measures taken in response to the COVID-19 pandemic. These cost-saving measures were temporary and ended during the third quarter of 2020.$115.9$54 million increase in selling, general and administrative expenses withinour health care distribution segment$96.7$36 million of operating costs and an increaseof $26.1$21 million of additional costs$6.9$3 million in restructuring costs.The $18.8$14 million$9.2$7 million of operating costs and anincrease of $9.8$7 million of additional costscompanies, partially offset bycompanies.decreasecomponent of $0.2total selling, general and administrative expenses,selling expenses increased $57 million, orrestructuring costs.sellinggeneraland administrative expenses$67.7$11 million, or 19.7%3.7% to $411.2$287 million primarily due to an increase in payroll and payroll related costs. As a percentage of net sales, selling expenses increased to 13.0% from 12.1%.As a component of total selling, generalcosts and administrative expenses, generaladministrative expenses increased $67.0 million, or 30.0% to $290.1 million primarily due to an increase in payroll and payroll related costs. convention expenses.As a percentage of net sales, general and administrative expenses increased decreasedto 9.1%7.8%9.3%.
|
|
| September 25, |
| September 26, |
| Variance | ||||||
|
|
| 2021 |
| 2020 |
| $ |
| % | ||||
Interest income |
| $ | 1,409 |
| $ | 2,294 |
| $ | (885) |
| (38.6) | % | |
Interest expense |
|
| (6,550) |
|
| (11,111) |
|
| 4,561 |
| 41.0 |
| |
Other, net |
|
| 403 |
|
| (1,699) |
|
| 2,102 |
| 123.7 |
| |
| Other expense, net |
| $ | (4,738) |
| $ | (10,516) |
| $ | 5,778 |
| 54.9 |
|
follows:
Income Taxes September 25, % of September 26, % of Increase/(Decrease) 2021 Total 2020 Total $ % Health care distribution (1) Dental $ 5,522,166 60.9 % $ 4,066,221 58.5 % $ 1,455,945 35.8 % Medical 3,084,677 34.0 2,445,644 35.2 639,033 26.1 Total health care distribution 8,606,843 94.9 6,511,865 93.7 2,094,978 32.2 Technology and value-added services (2) 463,656 5.1 375,547 5.4 88,109 23.5 Total excluding Corporate TSA revenue 9,070,499 100.0 6,887,412 99.1 2,183,087 31.7 Corporate TSA revenue (3) - - 66,004 0.9 (66,004) - Total $ 9,070,499 100.0 % $ 6,953,416 100.0 % $ 2,117,083 30.4 September 25, Gross September 26, Gross Increase/(Decrease) 2021 Margin % 2020 Margin % $ % Health care distribution $ 2,375,341 27.6 % $ 1,687,531 25.9 % $ 687,810 40.8 % Technology and value-added services 317,406 68.5 265,040 70.6 52,366 19.8 Total excluding Corporate TSA revenues 2,692,747 29.7 1,952,571 28.3 740,176 37.9 Corporate TSA revenues - - 1,977 3.0 (1,977) - Total $ 2,692,747 29.7 $ 1,954,548 28.1 $ 738,199 37.8 % of % of September 25, Respective September 26, Respective Increase 2021 Net Sales 2020 Net Sales $ % Health care distribution $ 1,816,373 21.1 % $ 1,418,031 21.8 % $ 398,342 28.1 % Technology and value-added services 225,279 48.6 182,414 48.6 42,865 23.5 Total $ 2,041,652 22.5 $ 1,600,445 23.0 $ 441,207 27.6 September 25, September 26, Variance 2021 2020 $ % Interest income $ 4,749 $ 7,481 $ (2,732) (36.5) % Interest expense (19,411) (29,409) 9,998 34.0 Other, net 1,066 (2,210) 3,276 148.2 Other expense, net $ (13,596) $ (24,138) $ 10,542 43.7 balances resulting from increased sales. The following table summarizes selected measures of liquidity and capital September 25, December 26, 2021 2020 Cash and cash equivalents $ 119,133 $ 421,185 Working capital (1) 1,610,956 1,508,313 Debt: Bank credit lines $ 59,394 $ 73,366 Current maturities of long-term debt 9,638 109,836 Long-term debt 705,540 515,773 Total debt $ 774,572 $ 698,975 Leases: Current operating lease liabilities $ 77,383 $ 64,716 Non-current operating lease liabilities 270,152 238,727 (1) At September 25, 2021 and December 26, 2020, there were no trade accounts receivable that were restricted to settle obligations of this VIE, nor were there liabilities of the VIE where the creditors have recourse to us. resources: September 25, December 26, 2021 2020 Revolving credit agreement $ - $ - Other short-term bank credit lines 59,394 73,366 Total $ 59,394 $ 73,366 Leases September 25, December 26, 2021 2020 Private placement facilities $ 706,433 $ 613,498 Note payable - 1,554 Various collateralized and uncollateralized loans payable with interest, in varying installments through 2023 at interest rates ranging from 2.45% to 4.27% at September 25, 2021 and ranging from 2.62% to 4.27% at December 26, 2020 3,566 4,596 Finance lease obligations (see Note 6) 5,179 5,961 Total 715,178 625,609 Less current maturities (9,638) (109,836) Total long-term debt $ 705,540 $ 515,773 Amount of Borrowing Borrowing Date of Borrowing Outstanding Rate Due Date January 20, 2012 (1) $ 7,143 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 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 100,000 2.35 September 2, 2030 June 2, 2021 100,000 2.48 June 2, 2031 June 2, 2021 100,000 2.58 June 2, 2033 Less: Deferred debt issuance costs (710) $ 706,433 (1) Annual repayments of approximately $7.1 million for this borrowing commenced on January 20, 2016. We have operating and finance leases for corporate offices, office space, distribution and other facilities, vehicles, Stock Repurchases September 25, December 26, 2021 2020 Balance, beginning of period $ 327,699 $ 287,258 Decrease in redeemable noncontrolling interests due to redemptions (50,292) (17,241) Increase in redeemable noncontrolling interests due to business acquisitions 189,870 28,387 Net income attributable to redeemable noncontrolling interests 19,770 13,363 Dividends declared (13,959) (12,631) Effect of foreign currency translation loss attributable to redeemable noncontrolling interests (4,098) (4,279) Change in fair value of redeemable securities 143,592 32,842 Balance, end of period $ 612,582 $ 327,699 quarter. ITEM 3.QUANTITATIVEAND QUALITATIVEDISCLOSURES ABOUT MARKET RISK ITEM 4.CONTROLS AND PROCEDURES business. ITEM 1A. RISK FACTORS ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIESAND USE OF PROCEEDS As of 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) 6/27/21 through 7/31/2021 370,000 $ 76.47 370,000 4,637,640 8/1/21 through 8/28/2021 281,289 77.17 281,289 4,652,401 8/29/21 through 9/25/2021 - - - 4,481,436 651,289 651,289 (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. years following a Change in Control (such termination of employment, Pursuant to the requirements of the Securities Exchange Act of 1934, theRegistrant has duly caused this Report to decreased $0.9lowerincreased interest rates and reduced late fee income. Interest expense decreased $4.6 million primarily due to reduced credit line borrowings.rates.42September 25, 2021,March 26, 2022 our effective tax rate was 23.9%24.0% comparedto 16.4%25.1% for the prior yearSeptember 25, 2021 was primarily due to state and foreign taxes, interest expense and tax charges and credits associated with legal entity reorganizations. The difference between our effective tax rate and the federal statutory tax rate for the three months ended September 26, 2020 was primarily due to a U.S federal income tax settlement, reached during the third quarter of 2020, which lowered income tax expense by approximately $15.6 million, as well as state and foreign income taxes and interest expense.Gain on Sale of Equity InvestmentIn the third quarter of 2021 we received contingent proceeds of $9.8 million from the 2019 sale of Hu-Friedy resulting in the recognition of an additional after-tax gain of $7.3 million.43Nine Months Ended September 25, 2021 Compared to Nine Months Ended September 26, 2020Net SalesNet sales were as follows (in thousands):(1)Consists of consumable products, small equipment, laboratory products, large equipment, equipment repair services, branded and generic pharmaceuticals, vaccines, surgical products, dental specialty products (including implant, orthodontic and endodontic products), diagnostic tests, infection-control products, PPE 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. See Note-18 Related Party Transactions for further information.The 30.4% increase in net sales includes an increase of 28.1% in local currency revenue (24.0% increase in internally generated revenue and 4.1% growth from acquisitions) and an increase of 2.3% related to foreign currency exchange. Excluding sales of products under the transition services agreement with Covetrus, our net sales increased 31.7%, including an increase in local currency revenue of 29.3% (25.2% increase in internally generated revenue and 4.1% growth from acquisitions) and an increase of 2.4% related to foreign currency exchange. We estimate that sales for the nine months ended September 25, 2021 of PPE and COVID-19 related products were approximately $1,304.0 million, an estimated increase of 68.9% versus the prior year. Excluding PPE and COVID-19 related products, the estimated increase in internally generated local currency sales excluding Corporate TSA revenues was 21.3%.The 35.8% increase in dental net sales includes an increase of 32.0% in local currency revenue (27.2% increase in internally generated revenue and 4.8% growth from acquisitions) and an increase of 3.8% related to foreign currency exchange. The 32.0% increase in local currency sales was attributable to an increase in dental consumable merchandise revenue of 32.4% (26.5% increase in internally generated revenue and 5.9% growth from acquisitions), and an increase in dental equipment sales and service revenues of 30.5% (29.8% increase in internally generated revenue and 0.7% growth from acquisitions). The COVID-19 pandemic began to adversely impact our worldwide dental revenue beginning in mid-March of 2020 as many dental offices progressively closed or began seeing a limited number of patients. However, in the second half of the quarter ended JuneMarch 27, 2020 and continuing through the quarter ended September 26, 2020, patient traffic began to stabilize and approached pre-pandemic levels. The growth in dental revenues reflects this recovery. Additionally, we estimate that global dental sales for the nine months ended September 25, 2021 of PPE and COVID-19 related products were approximately $520.3 million, an estimated increase of 46.8% versus the prior year. Excluding PPE and COVID-19 related products, the estimated increase in internally generated local currency dental sales was 27.9%.44The 26.1% increase in medical net sales is attributable to an increase of 25.9% in local currency growth (23.7% increase in internally generated revenue and 2.2% growth from acquisitions) and an increase of 0.2% related to foreign currency exchange. Economic conditions relating to the COVID-19 pandemic have had less of an impact on the performance of our medical group versus dental, in part due to continued strong sales of PPE, such as masks, gowns and face shields, and other COVID-19 related products, such as diagnostic test kits. Globally, we estimate our medical business recorded sales of approximately $783.8 million sales of such PPE and other COVID-19 related products for the nine months ended September 25, 2021, an increase of approximately 87.6% compared to the prior year. Excluding PPE and other COVID-19 related products, the estimated increase in internally generated local currency medical sales was 10.7%.The 23.5% increase in technology and value-added services net sales is attributable to an increase of 21.9% in local currency revenue (12.9% increase in internally generated revenue and 9.0% growth from acquisitions) and 1.6% related to foreign currency exchange. Sales growth was driven by our practice management business, as well as strong financial services revenue, which benefitted from dental equipment sales growth.Gross ProfitGross profit and gross margin percentages by segment and in total were as follows (in thousands):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.During December 2020, our previous transition services agreement with Covetrus, in connection with the completion of the Animal-Health Spin-off, concluded. Under this agreement, Covetrus had agreed to purchase certain products from us 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 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 $687.8 million, or 40.8% primarily due to the increase in net sales discussed above. Health care distribution gross profit margin increased to 27.6% from 25.9% primarily due to lower adjustments recorded for PPE inventory. Such adjustments to inventory may recur and adversely impact gross profit margins in future periods, although we do not expect further material inventory adjustments in 2021. The increase in the health care distribution gross profit margin is also attributable to an increase in vendor rebates during the first nine months of 2021 due to increased purchase volumes. The overall increase in our health care distribution gross profit is attributable to a $489.2 million increase in internally generated revenue, $119.1 million in gross profit due to the increase in the gross margin rates and $79.5 million additional gross profit from acquisitions.45Technology and value-added services gross profit increased $52.4 million, or 19.8%, attributable to an increase of $37.8 million in internally generated revenue and $22.1 million additional gross profit from acquisitions, partially offset by a $7.5 million decrease in gross profit. Technology and value-added services gross profit margin decreased to 68.5% from 70.6% primarily due to lower gross margins of recently acquired companies in the business services sector and certain transactions with the U.S. federal government.Selling, General and AdministrativeSelling, general and administrative expenses by segment and in total were as follows (in thousands):Selling, general and administrative expenses (including restructuring costs) increased $441.2 million, or 27.6%. In the prior year, there were significant cost-saving measures taken in response to the COVID-19 pandemic. These cost-saving measures were temporary and ended during the third quarter of 2020.The $398.3 million increase in selling, general and administrative expenses within our health care distribution segment was attributable to an increase of $349.8 million of operating costs and an increase of $72.3 million of additional costs from acquired companies, partially offset by a decrease of $23.8 million in restructuring costs. The $42.9million increase in selling, general and administrative expenses within our technology and value-added services segment was attributable to an increase of $24.5 million of operating costs and an increase of $19.0 million of additional costs from acquired companies, partially offset by a decrease of $0.6 million in restructuring costs. As a percentage of net sales, selling, general and administrative expenses decreased to 22.5% from 23.0%.As a component of total selling, general and administrative expenses, selling expenses increased $231.9 million, or 23.8% to $ 1,205.7 million, primarily due to an increase in payroll and payroll related costs. As a percentage of net sales, selling expenses decreased to 13.3% from 14.0%.As a component of total selling, general and administrative expenses, general and administrative expenses increased $209.3 million, or 33.4% to $835.9 million, primarily due to an increase in payroll and payroll related costs. As a percentage of net sales, general and administrative expenses increased to 9.2% from 9.0%.Other Expense, NetOther expense, net, was as follows (in thousands):Interest income decreased $2.7 million primarily due to lower interest rates and reduced late fee income. Interest expense decreased $10.0 million primarily due to reduced credit line borrowings and lower interest rates on certain of our private placement borrowings.46Income TaxesFor the nine months ended September 25, 2021, our effective tax rate was 24.2% compared to 20.0% for the prior year period. The difference between our effective tax rate and the federal statutory tax rate for the nine months ended September 25, 2021 was primarily due to state and foreign income taxes, interest expense and tax charges and credits associated with legal entity reorganizations. The difference between our effective tax rate and the federal statutory tax rate for the nine months ended September 26, 2020 was primarily due to a U.S federal income tax settlement, reached during the third quarter of 2020, which lowered income tax expense by approximately $15.6 million, as well as state and foreign income taxes and interest expense.Gain on Sale of Equity InvestmentIn the third quarter of 2021 we received contingent proceeds of $9.8 million from the 2019 sale of Hu-Friedy resulting in the recognition of an additional after-tax gain of $7.3 million.47March ofApril 2020, but were resumed during the three months ended in early27, 2021).Working capital requirements generally result from increased sales, special inventory forward buy-inThe 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 of 2020 and continuing through year-end, dental and medical practices began to re-open worldwide. During the first nine months of 2021, patient traffic levels returned to levels approaching pre-pandemic levels. 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. We have no off-balance sheet arrangements. from continuing operations provided by operating activities was $432.9$93 million for the ninethree months ended September 25, 2021,March 26, 2022, compared to from continuing operations provided by operating activities of $248.4$63 million for the comparableprior year period.The net change of $184.5partially offset by increased and decreasedworking capital, requirements, specifically an increase a decreaseinventories due to ongoing stockinginventorylevels of PPE and COVID-19 related products, and reduced accounts payablelevelsof prepaid inventory and accrued expenses. lowerincreasesdecreases were partially offset by lower growthan increase in accountsas days sales outstanding were lower than in the prior year. from continuing operations used in investing activities was $479.0$27 million for the nine threemonths ended September 25, 2021,March 26, 2022, compared to $94.0 $223$385.0$196 million was primarily attributable to increased from continuing operations used in financing activities was $254.5$62 million for the nine threemonths ended September 25, 2021,March 26, 2022, compared to netprovided byused in financing activities of $264.4$120 million for the comparableprior year period.The net change of $518.9 $58net proceeds from bank borrowings and increased repurchases of common stock.48 resources (in thousands):42.642 days as of September 25, 2021March 26, 2022 from 48.8 43September 26, 2020. March 27, 2021.During the ninethree months ended September 25, 2021,March 26, 2022, we wrote off approximately $5.6$3 million increased 5.1 as of September 25, 2021 from 4.7 as of SeptemberMarch 26, 2020. 2022 from 5.2 as of March 27, 2021.Our working capital accounts may beBank Credit LinesBank credit lines consisted of the following:Revolving Credit AgreementOn August 20, 2021, we entered into a new $1 billion revolving credit agreement (the “Credit Agreement”). This facility, which matures on August 20, 2026, replaced our $750 million revolving credit facility, which was scheduled to mature 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 most LIBOR rates to be discontinued immediately after December 31, 2021, while the remaining LIBOR rates will be discontinued immediately after June 30, 2023. 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 certain 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 September 25, 2021, and December 26, 2020, we had no borrowings under this revolving credit facility. As of September 25, 2021, and December 26, 2020, there were $9.1 million and $9.5 million of letters of credit, respectively, provided to third parties under the credit facility.49On 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 AgreementOn March 4, 2021, we repaid the outstanding obligations and terminated the lender commitments under our $700 million 364-day credit agreement, which was entered into on April 17, 2020. This facility was originally scheduled to mature on April 16, 2021.Other Short-Term Credit LinesAs of September 25, 2021 and December 26, 2020, we had various other short-term bank credit lines available, of which $59.4 million and $73.4 million, respectively, were outstanding. At September 25, 2021 and December 26, 2020, borrowings under all of these credit lines had a weighted average interest rate of 7.42% and 4.14%, respectively.Long-term debtLong-term debt consisted of the following:Private Placement FacilitiesOur 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. 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 March 5, 2021, we amended the private placement facilities to, among other things, (a) modify the financial covenant from being based on a net leverage ratio to a total leverage ratio and (b) restore the maximum maintenance total leverage ratio to 3.25x and remove the 1.00% interest rate increase triggered if the net leverage ratio were to exceed 3.0x.On October 20, 2021, we amended our three private placement facilities with insurance companies and entered into a fourth private placement facility with another insurance company, increasing the total facilities amount to $1.550billion and extending the maturity date of the existing facilities. The maturity date for our private placement facilities is October 20, 2026.The components of our private placement facility borrowings as of September 25, 2021 are presented in the following table (in thousands):U.S. Trade Accounts Receivable SecuritizationWe 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 September 25, 2021 and December 26, 2020, there were no borrowings outstanding under this securitization facility. At September 25, 2021, the interest rate on borrowings under this facility was based on the asset-backed commercial paper rate of 0.13% plus 0.95%, for a combined rate of 1.08%. 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%.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.On October 20, 2021, we amended our U.S. trade accounts receivable securitization facility to increase the purchase limit to $450 million with two banks as agents and extend the expiration date to October 18, 2024.Leases2019 years, some ofSeptember 25, 2021,March 26, 2022, our right-of-use assets$329.9$331 million and our current and non-currentoperating lease liabilities were $77.4 $76$270.2$277 million, respectively.51September 25, 2021,March 26, 2022, we repurchased $3.9$4.0 billion,or 79,082,13581,068,993 shares, under our$350.0$200 million available as of September 25, 2021March26, 2022 for future common stockRedeemable Noncontrolling InterestsSome minority stockholders in certainwe did not repurchase any shares of our subsidiaries have common stock becauseweright, at certain times, to require us to acquire their ownership interest in those entities at fair value. Accounting Standards Codification Topic 480-10 is applicable for noncontrolling interests where we are or may be required to purchase all or a portion of the outstanding interest in a consolidated subsidiary from the noncontrolling interest holder under the terms of a put option contained in contractual agreements. The components of the change in the redeemable noncontrolling interests for the nine months ended September 25, 2021 and the year ended December 26, 2020 are presented in the following table:Changes in the estimated redemption amounts of the noncontrolling interests subjectWe intend 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 receiveplacepurchase price cash consideration if certain financial targets are met. Any adjustments to these accrual amounts are recorded in our consolidated statements of income. For the nine months ended September 25, 2021 and September 26, 2020, there were no material adjustments recorded in our consolidated statements of income relating to changes in estimated contingent purchase price liabilities.Noncontrolling InterestsNoncontrolling 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.5226, 2020, 25, 2021,except accounting policies adopted27, 2020,26, 2021, which are discussed inOur financial results for the nine months ended September 26, 2020 were affected by certain estimates we made due to the adverse business environment brought on by the COVID-19 pandemic. For example, in the quarter ended March 28, 2020 we recorded incremental bad debt reserves of approximately $10.0 million for our global dental business. During the quarter ended March 28, 2020, we also recognized a net credit of approximately $17.5 million in stock-based compensation expense due to our estimate that no performance shares granted in 2018, 2019 or 2020 would ultimately vest. For the quarter ended June 27, 2020, we continued to estimate that no such performance-based shares would ultimately vest. In contrast, for the nine months ended September 25, 2021, we recorded $57.7 million in stock-based compensation. Additionally, in the quarter ended March 28, 2020, we recorded total impairment charges of approximately $6.1 million related to prepaid royalty expenses and a customer relationship intangible asset. We had no material impairment charges in the quarter ended September 25, 2021. Although our selling, general and administrative expenses for the nine months ended September 25, 2021 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.26, 2020.25, 2021.53September 25, 2021,March26, 2022, to ensure that all acquisitions, continued acquisition integrations and systems integrationssystemimplementation undertakenduring the quarter as well as changes to the operating methods of some of our internal controls over financial reporting due to the COVID-19 pandemic, when considered in the aggregate, representsa material change in our internalquarterthree months ended September 25, 2021, we completed acquisitions of medical and dental businesses with combined aggregate annual revenues of approximately $165 million. In addition,March 26, 2022, post-acquisition integrationrelated activities continued for our and dental businesses acquired during prior quarters, representing aggregate annual revenues of approximately $280 million. quarters.These acquisitions, the majority of which utilizeAlso,September 25, 2021,March 26, 2022, we completed thesystems integrationimplementation activities to migrate existing systems to a new data center supporting certain and medical businesses in Germany, Italy, Austria, and Benelux representing aggregate projected annual revenues of approximately $970 million. acquisitions, continued acquisition integrations and system integrationssystems implementation involvenecessary and appropriate change-managementchange-In addition, as a result of a combination of continued governmental imposed and Company directed closures of some of our facilities due to the COVID-19 pandemic, we have had to maintain a number of changes to the operating methods of some of our internal controls. For example, moving 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.54PART II. OTHER INFORMATION26, 2020.$3.7$4.1 billion, authorized by our Board of Directors,to the repurchase program provide for a total$3.8$4.2 billion of shares of our common stock to be repurchased under thisprogram.On March 8, 2021, we announced the reinstatement of our share repurchase program.September 25, 2021,March 26, 2022, we had repurchased approximately $3.9$4.0 billion ofcommon stock (79,082,135(81,068,993 shares) under$350.0$200 million available for future common stockshare repurchases.The following table summarizes repurchasesrepurchase programat that time.The maximum number of shares that could befiscal quarter ended September 25, 2021.55ITEM 6. EXHIBITSCertification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.+Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.+Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.+101.INSInline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document+101.SCHInline XBRL Taxonomy Extension Schema Document+101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document+101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document+101.LABInline XBRL Taxonomy Extension Label Linkbase Document+101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document+104The cover page of Henry Schein, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 25, 2021, formatted in Inline XBRL (included within Exhibit 101 attachments).+56SIGNATUREHenry Schein, Inc.(Registrant)By: /s/ Steven PaladinoSteven PaladinoExecutive Vice President andChief Financial Officer(Authorized Signatory and Principal Financialand Accounting Officer)November 2, 202157