UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
(Mark One)
☒
 
QUARTERLY
 
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the
quarterly
 
period ended
March 26, 2022April 1, 2023
or
☐
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
 
ACT
 
OF 1934
For the transition period from ____________ to ____________
Commission File Number:
 
0-27078
HENRY SCHEIN, INC.
(Exact name of registrant as specified in its charter)
Delaware
11-3136595
(State or other jurisdiction of
(I.R.S. Employer Identification No.)
incorporation or organization)
135 Duryea Road
Melville
,
New York
(Address of principal executive offices)
11747
(Zip Code)
(
631
)
843-5500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $.01 per share
HSIC
The Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required
 
to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
 
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
 
past 90 days.
Yes
☒
 
No
 
☐
Indicate by
check mark
whether the registrant has submitted electronically every
 
has submitted
electronically every Interactive
Data File
required to
be submitted
pursuant
to
Rule
405
of
Regulation
S-T
(§232.405 of this chapter) during
 
the
preceding
12
months
(or
(or for
such
shorter
period
that
the
registrant
was
that the registrant was required to submit such files).
Yes
☒
 
No
 
☐
Indicate by
check mark
whether the
registrant is
a large
accelerated filer,
an accelerated
filer,
a non-accelerated
filer,
a smaller
reporting
company,
or
an
emerging
growth
company.
 
See
the
definitions
of
“large
“large accelerated
filer,”
 
“accelerated
filer,”
“smaller reporting company,”
and “emerging growth company”
 
in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
 
☐
 
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period
 
for
complying with any new or revised financial accounting standards provided
 
pursuant to Section 13(a) of the Exchange Act.
 
☐
Indicate by check mark whether the registrant is a shell company (as defined
 
in Rule 12b-2 of the Exchange Act).
Yes
☐
 
No
☒
As of April 25, 2022,May 1, 2023,
there were
138,050,781131,003,202
 
shares of the registrant’s common stock outstanding.
 
HENRY SCHEIN, INC.
INDEX
Page
3
4
5
6
7
8
8
9
10
11
12
14
16
18
19
20
21
23
23
24
25
2526
26
27
3839
39
40
40
40
41
4241
4342
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes.
3
PART
 
I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions,
 
except share data)
March 26,April 1,
December 25,31,
2023
2022
2021
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents
 
$
126
$
118117
Accounts receivable, net of reservesallowances for credit losses of $
7065
 
and $
6765
1,4441,470
1,4521,442
Inventories, net
1,8711,918
1,8611,963
Prepaid expenses and other
 
389438
413466
Total current assets
 
3,8303,952
3,8443,988
Property and equipment, net
 
358396
366383
Operating lease right-of-use assets
331280
325284
Goodwill
 
2,8572,917
2,8542,893
Other intangibles, net
 
644548
668587
Investments and other
427479
424472
Total assets
 
$
8,4478,572
$
8,4818,607
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
 
$
914855
$
1,0541,004
Bank credit lines
 
90236
51103
Current maturities of long-term debt
 
355
116
Operating lease liabilities
7673
7673
Accrued expenses:
Payroll and related
 
326231
385314
Taxes
 
174156
137132
Other
 
561566
593592
Total current liabilities
 
2,1442,172
2,3072,224
Long-term debt
 
7731,021
8111,040
Deferred income taxes
 
40
4236
Operating lease liabilities
277274
268275
Other liabilities
 
376368
377361
Total liabilities
 
3,6103,875
3,8053,936
Redeemable noncontrolling interests
 
613570
613576
Commitments and contingencies
 
(nil)
(nil)
Stockholders' equity:
Preferred stock, $
0.01
 
par value,
1,000,000
 
shares authorized,
NaNnone
 
outstanding
0-
0-
Common stock, $
0.01
 
par value,
480,000,000
 
shares authorized,
137,708,809131,196,783
 
outstanding on March 26, 2022April 01, 2023 and
137,145,558131,792,817
 
outstanding on December 25, 202131, 2022
1
1
Additional paid-in capital
0-
0-
Retained earnings
 
3,7593,684
3,5953,678
Accumulated other comprehensive loss
 
(168)(213)
(171)(233)
Total Henry Schein, Inc. stockholders' equity
3,5923,472
3,4253,446
Noncontrolling interests
632655
638649
Total stockholders' equity
 
4,2244,127
4,0634,095
Total liabilities, redeemable noncontrolling
 
interests and stockholders' equity
$
8,4478,572
$
8,4818,607
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes.
4
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENTS
 
OF INCOME
(unaudited, in millions,
except share and per share data)
(unaudited)
Three Months Ended
April 1,
March 26,
March 27,2023
2022
2021
Net sales
 
$
3,1793,060
$
2,9253,179
Cost of sales
 
2,2062,094
2,0342,206
Gross profit
 
973966
891973
Operating expenses:
 
Selling, general and administrative
 
682717
614682
Depreciation and amortization
4744
4447
Restructuring costs
 
030
3-
Operating income
 
244175
230244
Other income (expense):
 
Interest income
 
23
2
Interest expense
 
(14)
(7)
(6)Other, net
(1)
-
Income before taxes, equity in earnings of affiliates and noncontrolling interests
239163
226239
Income taxes
 
(57)(39)
(57)
Equity in earnings of affiliates
 
4
64
Net income
 
186128
175186
Less: Net income attributable to noncontrolling interests
 
(5)(7)
(9)(5)
Net income attributable to Henry Schein, Inc.
 
$
181121
$
166181
Earnings per share attributable to Henry Schein, Inc.:
 
Basic
 
$
1.310.92
$
1.171.31
Diluted
 
$
1.300.91
$
1.161.30
Weighted-average common
 
shares outstanding:
 
Basic
 
137,296,581131,365,789
142,298,387137,296,581
Diluted
 
139,237,472133,039,886
143,397,724139,237,472
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes.
5
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENTS
 
OF COMPREHENSIVE INCOME
(unaudited, in millions)
(unaudited)
Three Months Ended
April 1,
March 26,
March 27,2023
2022
2021
Net income
 
$
186128
$
175186
Other comprehensive income, (loss), net of tax:
Foreign currency translation gain (loss)
25
3
(38)
Unrealized gain (loss) from foreign currency hedging activities
 
1
3
Pension adjustment gain
0(3)
1
Other comprehensive income, (loss), net of tax
 
422
(34)4
Comprehensive income
 
150
190
141
Less: Comprehensive income attributable to noncontrolling interests:
 
Net income
 
(5)(7)
(9)(5)
Foreign currency translation (gain) lossgain
(2)
(1)
6
Comprehensive income attributable to noncontrolling interests
 
(6)(9)
(3)(6)
Comprehensive income attributable to Henry Schein, Inc.
 
$
184141
$
138184
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes.
6
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENT
 
OF CHANGES IN
 
STOCKHOLDERS’ EQUITY
(unaudited, in millions, except share data)
(unaudited)
Accumulated
Common Stock
Additional
Other
Total
$0.01 Par Value
Paid-in
Retained
Comprehensive
Noncontrolling
Stockholders'
Shares
Amount
Capital
Earnings
Income / (Loss)
Interests
Equity
Balance, December 31, 2022
131,792,817
$
1
$
-
$
3,678
$
(233)
$
649
$
4,095
Net income (excluding $
4
attributable to redeemable
noncontrolling interests)
-
-
-
121
-
3
124
Foreign currency translation gain (excluding gain of $
2
attributable to redeemable noncontrolling interests)
-
-
-
-
23
-
23
Unrealized loss from foreign currency hedging activities,
net of tax benefit of $
1
-
-
-
-
(3)
-
(3)
Change in fair value of redeemable securities
-
-
3
-
-
-
3
Initial noncontrolling interests and adjustments related to
business acquisitions
-
-
-
-
-
3
3
Repurchases and retirement of common stock
(1,223,919)
-
(13)
(87)
-
-
(100)
Stock-based compensation expense
1,016,300
-
10
-
-
-
10
Stock issued upon exercise of stock options
10,779
-
1
-
-
-
1
Shares withheld for payroll taxes
(399,194)
-
(29)
-
-
-
(29)
Transfer of charges in excess of
capital
-
-
28
(28)
-
-
-
Balance, April 1, 2023
131,196,783
$
1
$
-
$
3,684
$
(213)
$
655
$
4,127
Accumulated
Common Stock
Additional
Other
Total
$0.01 Par Value
Paid-in
Retained
Comprehensive
Noncontrolling
Stockholders'
Shares
Amount
Capital
Earnings
Income / (Loss)
 
Interests
Equity
Balance, December 25, 2021
137,145,558
$
1
$
0-
$
3,595
$
(171)
$
638
$
4,063
Net income (excluding $
4
 
attributable to Redeemableredeemable
noncontrolling interests)
-
0-
0-
181
0-
1
182
Foreign currency translation gain (excluding gain of $
1
attributable to Redeemableredeemable noncontrolling interests)
-
0-
0-
0-
2
0-
2
Unrealized gain from foreign currency hedging activities,
net of tax of $
1
-
0-
0-
0-
1
0-
1
Purchase of noncontrolling interests
-
0-
0-
0-
0-
(7)
(7)
Change in fair value of redeemable securities
-
0-
(3)
0-
0-
0-
(3)
Stock-based compensation expense
876,161
0-
12
0-
0-
0-
12
Stock issued upon exercise of stock options
26,233
0-
2
0-
0-
0-
2
Shares withheld for payroll taxes
(336,331)
0-
(28)
0-
0-
0-
(28)
Settlement of stock-based compensation awards
(2,812)
0-
0-
0-
0-
0-
0-
Transfer of charges in excess of
 
capital
-
0-
17
(17)
0-
0-
0-
Balance, March 26, 2022
137,708,809
$
1
$
0-
$
3,759
$
(168)
$
632
$
4,224
Accumulated
Common Stock
Additional
Other
Total
$0.01 Par Value
Paid-in
Retained
Comprehensive
Noncontrolling
Stockholders'
Shares
Amount
Capital
Earnings
Income / (Loss)
 
Interests
Equity
Balance, December 26, 2020
142,462,571
$
1
$
0
$
3,455
$
(108)
$
636
$
3,984
Net income (excluding $
7
 
attributable to Redeemable
noncontrolling interests)
-
0
0
166
0
2
168
Foreign currency translation loss (excluding loss of $
6
attributable to Redeemable noncontrolling interests)
-
0
0
0
(32)
0
(32)
Unrealized gain from foreign currency hedging activities,
net of tax of $
1
-
0
0
0
3
0
3
Pension adjustment gain, net of tax of $
0
-
0
0
0
1
0
1
Change in fair value of redeemable securities
-
0
(46)
0
0
0
(46)
Initial noncontrolling interests and adjustments related
 
to
business acquisitions
-
0
0
0
0
1
1
Repurchase and retirement of common stock
(1,325,242)
0
(12)
(77)
0
0
(89)
Stock-based compensation expense
281,645
0
13
0
0
0
13
Settlement of stock-based compensation awards
-
0
1
0
0
0
1
Shares withheld for payroll taxes
(108,861)
0
(7)
0
0
0
(7)
Transfer of charges in excess of
 
capital
-
0
51
(51)
0
0
0
Balance, March 27, 2021
141,310,113
$
1
$
0
$
3,493
$
(136)
$
639
$
3,997
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes.
7
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENTS
 
OF CASH FLOWS
(unaudited, in millions)
(unaudited)
Three Months Ended
April 1,
March 26,
March 27,2023
2022
2021
Cash flows from operating activities:
Net income
 
$
186128
$
175186
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
 
52
55
49Non-cash restructuring charges
7
-
Stock-based compensation expense
1210
1312
Provision for (benefit from) losses on trade and other accounts receivable
 
1
(3)1
Provision for (benefit from) deferred income taxes
(3)2
11(3)
Equity in earnings of affiliates
(4)
(6)(4)
Distributions from equity affiliates
 
42
54
Changes in unrecognized tax benefits
 
41
34
Other
 
(7)(1)
0(7)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
 
16(20)
11916
Inventories
 
(9)63
(78)(9)
Other current assets
 
2629
(45)26
Accounts payable and accrued expenses
 
(188)(243)
(180)(188)
Net cash provided by operating activities
9327
6393
Cash flows from investing activities:
Purchases of fixed assets
 
(19)(31)
(14)(19)
Payments related to equity investments and business acquisitions,
acquisitions, net of cash acquired
 
(5)(1)
(204)(5)
Proceeds from loan to affiliate
42
04
Other
 
(7)(9)
(5)(7)
Net cash used in investing activities
 
(27)(39)
(223)(27)
Cash flows from financing activities:
Net change in bank borrowings
 
132
30
0Proceeds from issuance of long-term debt
31
-
Principal payments for long-term debt
 
(53)(1)
(18)(53)
Proceeds from issuance of stock upon exercise of stock options
 
21
02
Payments for repurchases and retirement of common stock
 
0(100)
(89)-
Payments for taxes related to shares withheld for employee taxes
(26)(30)
(6)(26)
Distributions to noncontrolling shareholders
(5)(4)
(7)(5)
Acquisitions of noncontrolling interests in subsidiaries
 
(10)(8)
0(10)
Net cash used inprovided by (used in) financing activities
(62)21
(120)(62)
Effect of exchange rate changes on cash and cash equivalents
4-
34
Net change in cash and cash equivalents
89
(277)8
Cash and cash equivalents, beginning of period
 
118117
421118
Cash and cash equivalents, end of period
 
$
126
$
144126
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
8
Note 1 – Basis of Presentation
Our condensed consolidated financial statements include the accounts of Henry
 
Schein, Inc. and all of our
controlled subsidiaries.subsidiaries (“we”, “us” or “our”).
 
All intercompany accounts and transactions are eliminated
 
in
consolidation.
 
Investments
in unconsolidated affiliates in which we have the ability to
influence the operating or
or financial decisions are
accounted for under the equity method.
 
Certain prior period amounts have been reclassified
to conform to the current
 
to the
current period presentation.
These reclassifications, individually and in the aggregate, did
not
have a material impact on our condensed consolidated financial condition,
results of operations or cash flows.
Our accompanying unaudited condensed consolidated financial statements
 
have been prepared in accordance with
accounting principles generally accepted in the United States
 
(“U.S. GAAP”) for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
 
Accordingly, they do not include all of the
information and footnote disclosures required by U.S. GAAP for complete financial
 
financial statements.
The unaudited interim condensed consolidated financial statements should be
 
read in conjunction with the audited
consolidated financial statements and notes to the consolidated financial
 
statements contained in our Annual Report
on Form 10-K for the year ended December 25, 202131, 2022 and with the information
 
contained in our other publicly-
available filings with the Securities and Exchange Commission.
 
The condensed consolidated financial statements
reflect all adjustments considered necessary for a fair presentation of the
 
the consolidated results of operations and
financial position for the interim periods presented.
 
All such adjustments are of a normal recurring nature.
 
The preparation of financial statements in conformity with accounting principles
 
generally accepted in the United
States requires us to make estimates and assumptions that affect the reported amounts of assets
 
assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements
 
statements and the reported amounts of
revenues and expenses during the reporting period.
 
Actual results could differ from those estimates.
 
The results of
operations for the three months ended March 26, 2022April 1, 2023 are not necessarily
 
indicative of the results to be expected for
for any other interim period or for the year ending December 31, 2022.30, 2023.
We consolidate the results of operations and financial position of a trade accounts receivable securitization which
we consider a Variable Interest Entity (“VIE”) because we are the primary beneficiary, and we have the power to
direct activities that most significantly affect the economic performance and have
 
the obligation to absorb the
majority of the losses or benefits.
 
For this VIE, the trade accounts receivable transferred to the VIE are
 
are pledged as
collateral to the related debt.
 
The creditors have recourse to us for losses on these trade accounts
receivable.
 
At
March 26, 2022April 1, 2023 and December 25, 2021,31, 2022, certain trade accounts receivable that
 
that can only be used to settle obligations
obligations of this VIE were $
77555
 
million and $
138327
 
million, respectively, and the liabilities of this VIE where the creditors
creditors have recourse to us were $
60420
 
million and $
105255
 
million, respectively.
Our condensed consolidated financial statements reflect estimates and assumptions
 
assumptions made by us that affect, among
other things, our goodwill, long-lived asset and definite-lived intangible
 
asset valuation; inventory valuation; equity
investment valuation; assessment of the annual effective tax rate; valuation of deferred
 
deferred income taxes and income
tax contingencies; the allowance for doubtful accounts; hedging activity;
 
supplier rebates; measurement of
compensation cost for certain share-based performance awards and cash bonus
 
plans; and pension plan
assumptions.
 
Due toThere is an ongoing risk that the significant uncertainty surroundingconsequences of the future impact ofCOVID-19
 
COVID-19,pandemic may again have a
material adverse effect on our judgments
regarding estimatesbusiness, results of operations and impairments could change in the futurecash flows and may
 
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
time.
.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
9
Note 2 – Critical Accounting Policies, Accounting Pronouncements Adopted
 
and Recently Issued Accounting
Standards
Critical Accounting Policies
 
There have been no material changes in our critical accounting policies
 
during the three months ended March 26,April 1,
2022,2023, as compared to the critical accounting policies described in Item
 
7 of our Annual Report on Form 10-K for
the year ended December 25, 2021, except as follows:31, 2022.
Accounting Pronouncements Adopted
On
December 26, 2021
we adopted Accounting Standards Update (“ASU”) No. 2021 – 08, “Accounting
for
Contract Assets and Contract Liabilities from Contracts with Customers”
(Subtopic 805), as early adoption of this
ASU was permitted.
ASU 2021 – 08 requires an acquirer to recognize and measure
contract assets and contract
liabilities acquired in a business combination in accordance with Topic 606.
At the acquisition date, an acquirer
should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts.
To achieve this, an acquirer may assess how the acquiree applied Topic 606 to determine what to record for the
acquired revenue contracts.
Generally, this should result in an acquirer recognizing and measuring the acquired
contract assets and contract liabilities consistent with how
they were recognized and measured in the acquiree’s
financial statements.
Our
adoption
of ASU 2021 - 08 did not have a material impact on our consolidated
financial
statements.
Recently Issued Accounting Standards
In March 2020,September 2022, the Financial Accounting Standards Board (“FASB”) issued ASUAccounting Standards Update
(“ASU”) No. 2020-04, “Reference Rate
Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” which provides
optional expedients and exceptions for applying U.S. GAAP to contracts,2022-04, “Liabilities – Supplier Finance Programs (Subtopic
 
hedging relationships405-50): Disclosure of Supplier Finance
Program Obligations,” which will increase transparency of supplier finance
programs by requiring entities that use
such programs in connection with the purchase of goods and other
transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) orservices to disclose
 
by anothercertain qualitative and quantitative
reference rate expected to be discontinued because of reference rate reform.information about such programs.
 
TheASU 2022-04 is effective for fiscal years beginning after December 15, 2022,
including interim periods within those fiscal years, except for amended
roll forward information, which is effective
for fiscal years beginning after December 15, 2023.
We do not expect that the requirements of this guidance was effective beginningwill
March 12, 2020 and can be applied prospectively throughhave a material impact on our condensed consolidated financial statements.
In December 31,
2022.
In January 2021,2022, the FASB issued
ASU 2021-01, ReferenceNo. 2022-06, “Reference Rate Reform (Topic 848): Scope (“ASU 2021-01”).
ASU 2021-01 provides temporaryDeferral of the
Sunset Date of Topic 848,” which extends the period of application of temporary optional expedients and exceptionsfrom
December 21, 2022 to certain guidance in U.S. GAAP
to ease the financial reporting burdens related
to the expected market transition from LIBOR and other interbank offered rates
to alternative reference rates, such
as the Secured Overnight Financing Rate.
The guidance is effective upon issuance, on January 7, 2021, and can be
applied through December 31, 2022.2024.
 
We do not expect that the requirements of this guidance will have a material
material impact on our condensed consolidated financial statements.
In March 2022, the FASB issued ASU No. 2022-01, “Derivatives and Hedging (Topic 815): Fair Value
Hedging –
Portfolio Layer Method,” which will expand companies' abilities
to hedge the benchmark interest rate risk of
portfolios of financial assets (or beneficial interests) in a fair value hedge.
This ASU expands the use of the
portfolio layer method (previously referred to as the last-of-layer
method) to allow multiple hedges of a single
closed portfolio of assets using spot starting, forward starting and amortizing-notional
swaps.
It also permits both
prepayable and non-prepayable financial assets to be included in the closed
portfolio of assets hedged in a portfolio
layer hedge.
This ASU further requires that basis adjustments not be allocated
to individual assets for active
portfolio layer method hedges, but rather be maintained on the closed portfolio
of assets as a whole.
ASU 2022 –
01 is effective for fiscal years beginning after December 15, 2022, including interim periods
within those fiscal
years.
Early adoption is permitted for any entity that has adopted the amendments
in ASU 2017-12.
We do not
expect that the requirements of this guidance will have a material impact
on our consolidated financial statements.
In March 2022, the FASB issued ASU No. 2022-02, “Financial Instruments – Credit Losses (Topic 326): Troubled
Debt Restructuring and Vintage Disclosures”.
The amendments in this ASU eliminate the accounting guidance
for
troubled debt restructurings by creditors that have adopted the Current Expected
Credit Losses model and enhance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
10
the disclosure requirements for loan refinancings and restructurings
made with borrowers experiencing financial
difficulty.
In addition, the amendments require a public business entity
to disclose current-period gross write-offs
for financing receivables and net investment in leases by year of origination
in the vintage disclosures.
ASU 2022
– 02 is effective for fiscal years beginning after December 15, 2022, including
interim periods within those fiscal
years.
Early adoption is permitted for any entity that has adopted the amendments
in ASU No. 2016-13, “Financial
Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”.
We do not
expect that the requirements of this guidance will have a material impact on our
consolidated financial statements.
Note 3 – RevenueNet Sales from Contracts with Customers
Revenue isNet sales are recognized in accordance with policies disclosed in Item
8 of our
Annual Report on Form 10-K for
the year ended December 25, 2021.31, 2022.
Disaggregation of Net Sales
The following table disaggregates our Netnet sales by reportable segment and geographic
 
area:
Three Months Ended
 
April 1, 2023
North America
International
Global
Net sales:
Health care distribution
Dental
$
1,144
$
754
$
1,898
Medical
951
20
971
Total health care distribution
2,095
774
2,869
Technology
and value-added services
166
25
191
Total net sales
$
2,261
$
799
$
3,060
Three Months Ended
March 26, 2022
North America
International
Global
Revenues:Net sales:
Health care distribution
Dental
 
$
1,105
$
723
$
1,828
Medical
 
1,150
22
1,172
Total health care distribution
2,255
745
3,000
Technology
 
and value-added services
156
23
179
Total revenuesnet sales
 
$
2,411
$
768
$
3,179
Three Months Ended
March 27, 2021
North America
International
Global
Revenues:
Health care distribution
Dental
$
1,045
744
1,789
Medical
963
28
991
Total health care distribution
2,008
772
2,780
Technology
and value-added services
124
21
145
Total revenues
$
2,132
$
793
$
2,925
Deferred Revenue
During the three months ended April 1, 2023, we recognized in net sales
$
35
million of the amounts that were
previously deferred at December 31, 2022.
At December 25, 2021,31, 2022, the current portion of contract liabilities
of $
8986
million was reported in Accruedaccrued expenses:
Other, other, and $
108
 
million related to non-current contract liabilities was
reported
in Otherother liabilities.
 
During the three
months ended March 26, 2022, we recognized in revenue $
39
million of the amounts that were previously deferred
at December 25, 2021.
At March 26, 2022,April 1, 2023, the current and non-current portion of contract liabilities were
 
were $
9185
million and $
9
 
million, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
11
Note 4
 
–
Segment Data
We conduct our business through
2two
 
reportable segments: (i) health care distribution and (ii) technology
and
value-added services.
These segments offer different products and services to the same customer base.
 
base. Our global
dental businesses serve office-based dental practitioners, dental laboratories, schools, andgovernment
 
and other institutions. Our
globalinstitutions.
Our medical businesses serve office-based medical practitioners,physician offices, urgent care centers, ambulatory care sites,
 
surgeryemergency
medical technicians, dialysis centers, home health, federal and state governments
and large enterprises, such as
group practices and integrated delivery networks, among other alternate-careproviders
across a wide range of specialties.
Our
settings and other institutions. Our global dental and medical groups serve
practitioners in
32
 
countries worldwide.
The health care distribution reportable segment aggregates our global dental
 
dental and medical operating segments.
This
segment distributes consumable products, dental specialty products, small
 
small equipment, laboratory products, large
equipment, equipment repair services, branded and generic pharmaceuticals,
 
vaccines, surgical products, diagnostic
tests, infection-control products, personal protective equipment (“PPE”)
 
and vitamins.
Our global technology and value-added services reportable segment provides
 
software, technology and other value-
added services to health care practitioners.
Our technology offerings include practice management
software systems
systems for dental and medical practitioners.
Our value-added practice solutions
include practice consultancy, education,
education, revenue cycle management and financial services on a non-recourse basis,
 
basis, e-services, practice
technology, network
and hardware services, as well as continuing education services for practitioners.
The following tables present information about our reportable and operating
 
segments:
Three Months Ended
April 1,
March 26,
March 27,2023
2022
2021
Net Sales:
Health care distribution
(1)
Dental
 
$
1,8281,898
$
1,7891,828
Medical
 
1,172971
9911,172
Total health care distribution
3,0002,869
2,7803,000
Technology
 
and value-added services
(2)
179191
145179
Total
 
$
3,1793,060
$
2,9253,179
(1)
Consists of consumable products, small equipment, laboratory products, large equipment, equipment repair services, branded and
generic pharmaceuticals, vaccines, surgical products, dental specialty products (including implant, orthodontic and endodontic
products), diagnostic tests, infection-control products, PPE products and vitamins.
(2)
Consists of practice management software and other value-added products, which are distributed primarily to health care providers,
practice consultancy, education, revenue cycle management and financial services on a non-recourse basis, e-services, continuing
education services for practitioners, consulting and other services.
Three Months Ended
April 1,
March 26,
March 27,2023
2022
2021
Operating Income:
Health care distribution
 
$
211145
$
197211
Technology
 
and value-added services
 
3330
33
Total
$
244175
$
230244
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
12
Note 5
 
–
Business Acquisitions
In connection with our business acquisitions, the major classes of
assets and liabilities to which we generally
allocate acquisition consideration to, excluding goodwill, include
identifiable intangible assets (i.e., customer
relationships and lists, trademarks and trade names, product development
and non-compete agreements), inventory
and accounts receivable.
The estimated fair value of identifiable intangible assets
is based on critical judgments
and assumptions derived from analysis of market conditions, including
discount rates, projected revenue growth
rates (which are based on historical trends and assessment of financial projections),
estimated customer attrition and
projected cash flows.
These assumptions are forward-looking and could be affected by future economic
and market
conditions.
While we use our best estimates and assumptions to accurately value assets
acquired and liabilities assumed at the
acquisition date as well as contingent consideration, where applicable,
our estimates are inherently uncertain and
subject to refinement.
As a result, within 12 months following the date of acquisition,
or the measurement period,
we may record adjustments to the assets acquired and liabilities assumed
with the corresponding offset to goodwill
within our condensed consolidated balance sheets.
At the end of the measurement period or final determination of
the values of such assets acquired or liabilities assumed, whichever
comes first, any subsequent adjustments are
recognized in our condensed consolidated statements of operations.
The accounting for certain of our acquisitions during the year ended December
31, 2022 had not been completed in
several areas, including but not limited to pending assessments of intangible
assets, and contingent consideration
assets and liabilities.
For the three months ended April 1, 2023 and March 26, 2022,
there were no material
adjustments recorded in our condensed consolidated statements of income
relating to changes in estimated values of
assets acquired, liabilities assumed and contingent consideration
assets and liabilities.
2023 Acquisitions
During the three months ended March 26, 2022,April 1, 2023, we acquired the majority
 
we made an acquisitionof a company within the technology and value-addedhealth care
servicesdistribution segment.
 
The impact of this acquisition was not considered material to our
 
our condensed consolidated
financial statements.
2021 Acquisitions
We completed acquisitions during the three months ended March 27, 2021 which were immaterial to our financial
statements.
Our ownership interest acquired ranges between approximately
65
% to
100
%.
Acquisitions within our
health care distribution segment included
companies that specialize in distribution of dental products, a provider
of
home medical supplies, and 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 aggregates
the estimated fair value, as of the
date of acquisition, of consideration
paid and net
assets acquired for acquisitionsthe acquisition during the three months ended March 27, 2021.April
 
While we use our best estimates1, 2023.
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.
2023
Acquisition consideration:
Cash
$
2128
Deferred consideration
21
Redeemable noncontrollingNoncontrolling interests
752
Total consideration
$
289
Identifiable assets acquired and liabilities assumed:
Current assets
8711
Intangible assets
151$
Other noncurrent assets
19
Current liabilities
(32)
Deferred income taxes
(9)
Other noncurrent liabilities
(22)2
Total identifiable
 
net assets
1942
Goodwill
959
Total net assets acquired
$
289
11
The acquired goodwill is deductible for tax purposes.
During the three months ended April 1, 2023 the identifiable intangible
 
assets acquired consisted of customer
relationships and lists of $
1
 
million and trademarks and tradenames of $
1
 
million.
 
The estimated useful lives of
these intangible assets are
2 years
 
and
5 years
, respectively.
Table of Contents
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
13
The following table summarizes the identifiable intangible assets acquired
during the quarter ended March 27, 2021Acquisition Costs
and their estimated useful lives as of the date of the acquisition:
Estimated
Useful Lives
(in years)
Trademark / Tradename
$
23
5
Non-compete agreements
5
5
Customer relationships and lists
120
8
-
12
Product development
3
7
Total
$
151
The major classes of assets and liabilities that we generally allocate purchase
price to, excluding goodwill, include
identifiable intangible assets (i.e., customer relationships and lists, trademarks
and trade names, product
development and non-compete agreements), inventory and accounts
receivable, property, plant and equipment,
deferred taxes and other current and long-term assets and liabilities.
The estimated fair value of identifiable
intangible assets is based on critical estimates, judgments and assumptions
derived from analysis of market
conditions, discount rates, discounted cash flows, customer retention rates
and estimated useful lives.
Some prior owners of 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.
ForDuring the three months ended April 1, 2023 and March 26, 2022 and March 27, 2021, there werewe
 
noincurred $
material adjustments recorded in our consolidated statements of income7
 
relating to changesmillion and $
1
million,
respectively, in estimated contingent
purchase price liabilities.acquisition costs.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
14
Note 6 – Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or
 
paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
 
The fair value hierarchy distinguishes between
(1) market participant assumptions developed based on market data obtained
 
from independent sources (observable
inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best
information available in the circumstances (unobservable inputs).
The fair value hierarchy consists of three broad levels, which gives the
 
highest priority to unadjusted quoted prices
in active markets for identical assets or liabilities (Level 1) and the lowest priority
 
to unobservable inputs (Level 3).
 
The three levels of the fair value hierarchy are described as follows:
•
 
Level 1— Unadjusted quoted prices in active markets for identical assets
 
or liabilities that are accessible at the
measurement date.
•
 
Level 2— Inputs other than quoted prices included within Level 1 that are observable
 
for the asset or liability,
either directly or indirectly.
 
Level 2 inputs include: quoted prices for similar assets or liabilities
 
in active markets;
quoted prices for identical or similar assets or liabilities in markets that are
 
not active; inputs other than quoted
prices that are observable for the asset or liability; and inputs that are
 
derived principally from or corroborated by
observable market data by correlation or other means.
•
 
Level 3— Inputs that are unobservable for the asset or liability.
The following section describes the fair values of our financial instruments
 
and the methodologies that we used to
measure their fair values.
Investments and notes receivable
There are no quoted market prices available for investments in unconsolidated
 
affiliates and notes receivable;receivable.
however, weCertain of our notes receivable contain variable interest rates.
We believe the carrying amounts are a reasonable
estimate of fair value based on the interest
rates in the
applicable markets.
Debt
The fair value of our debt (including bank credit lines)lines, current maturities
of long-term debt and long-term debt) is
classified as
Level 3 within the fair value hierarchy, and
as of March 26, 2022April 1, 2023 and December 25, 202131, 2022 was estimated
at $
8661,312
 
million and $
8731,149
 
million, respectively.
 
Factors that we considered when estimating the fair value
of
our debt
included include market conditions, such as interest
rates and credit spreads.
Derivative contracts
Derivative contracts are valued using quoted market prices and
 
significant other observable inputs.
 
We use
derivative instruments to minimize our exposure to fluctuations in foreign
 
currency exchange rates.
 
Our derivative
instruments primarily include foreign currency forward agreements related
 
to certain intercompany loans, certain
forecasted inventory purchase commitments with foreign suppliers,
 
foreign currency forward contracts to hedge a
portion of our euro-denominated foreign operations which are designated
 
as net investment hedges and a total
return swap for the purpose of economically hedging our unfunded non-qualified
 
non-qualified supplemental executive retirement
plan and our deferred compensation plan.
The fair values for the majority of our foreign currency derivative contracts
 
are obtained by comparing our contract
rate to a published forward price of the underlying market rates, which
 
is based on market rates for comparable
transactions and are classified within Level 2 of the fair value hierarchy.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
15
Total
Return Swaps
The fair value for the total return swap is measured by valuing
the underlying exchange traded funds of the swap
using market-on-close pricing by industry providers as of the valuation
date and are classified within Level 2 of the
fair value hierarchy.
Redeemable noncontrolling interests
The values for Redeemableredeemable noncontrolling interests are classified within Level
 
Level 3 of the fair value hierarchy and are
based on recent transactions and/or implied multiples of earnings.
 
See
Note 11–12 – Redeemable Noncontrolling
Interests
for additional information.
Assets measured on a non-recurring basis at fair value include Goodwill
and Other intangibles, net, and are
classified as Level 3 within the fair value hierarchy.
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
 
March 26, 2022April 1, 2023 and December 25,
2021:31, 2022:
March 26,April 1, 2023
Level 1
Level 2
Level 3
Total
Assets:
Derivative contracts designated as hedges
$
-
$
19
$
-
$
19
Derivative contracts undesignated
-
3
-
3
Total return
swaps
-
1
-
1
Total assets
$
-
$
23
$
-
$
23
Liabilities:
Derivative contracts designated as hedges
$
-
$
1
$
-
$
1
Derivative contracts undesignated
-
2
-
2
Total liabilities
$
-
$
3
$
-
$
3
Redeemable noncontrolling interests
$
-
$
-
$
570
$
570
December 31, 2022
Level 1
Level 2
Level 3
Total
Assets:
Derivative contracts designated as hedges
$
0-
$
1123
$
0-
$
1123
Derivative contracts undesignated
2-
24
Total return
swaps-
0
1
0
14
Total assets
 
$
0-
$
1427
$
0-
$
1427
Liabilities:
Derivative contracts designated as hedges
$
0-
$
1
$
0-
$
1
Derivative contracts undesignated
2-
23
-
3
Total return
swaps
-
3
-
3
Total liabilities
 
$
0-
$
37
$
0-
$
37
Redeemable noncontrolling interests
 
$
0-
$
0-
$
613576
$
613
December 25, 2021
Level 1
Level 2
Level 3
Total
Assets:
Derivative contracts designated as hedges
$
0
$
8
$
0
$
8
Derivative contracts undesignated
0
1
0
1
Total return
swaps
0
1
0
1
Total assets
576
$
0
$
10
$
0
$
10
Liabilities:
Derivative contracts designated as hedges
$
0
$
1
$
0
$
1
Derivative contracts undesignated
0
2
0
2
Total liabilities
$
0
$
3
$
0
$
3
Redeemable noncontrolling interests
$
0
$
0
$
613
$
613
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
(unaudited
)
16
Note 7 – Debt
Bank Credit Lines
Bank credit lines consisted of the following:
March 26,
December 25,
2022
2021
Revolving credit agreement
$
0
$
0
Other short-term bank credit lines
90
51
Total
$
90
$
51
Revolving Credit Agreement
On
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.
Most LIBOR rates have been discontinued 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 March 26, 2022 and December 25, 2021, we had
0
borrowings under this revolving credit facility.
As of March 26, 2022 and December 25, 2021, there were $
9
million and $
9
million of letters of credit, respectively, provided to third parties under the credit facility.
Other Short-Term Bank Credit
Lines
As of March 26, 2022 and December 25, 2021, we had various other short-term
bank credit lines available, of
which $
90
million and $
51
million, respectively, were outstanding.
At March 26, 2022 and December 25, 2021,
borrowings under all of these credit lines had a weighted average interest
rate of
8.91
% and
10.44
%, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
1716
Note 7 – Debt
Bank Credit Lines
Bank credit lines consisted of the following:
April 1,
December 31,
2023
2022
Revolving credit agreement
$
-
$
-
Other short-term bank credit lines
236
103
Total
$
236
$
103
Revolving Credit Agreement
On
August 20, 2021
, we entered into a $
1.0
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.
Most LIBOR rates have been discontinued 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 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 April 1, 2023 and December 31, 2022, we had
no
borrowings under this
revolving credit facility, and there were $
9
million and $
9
million of letters of credit, respectively, provided to third
parties under the credit facility.
Other Short-Term Bank Credit
Lines
As of April 1, 2023 and December 31, 2022, we had various other short-term
bank credit lines available, with a
maximum borrowing capacity of $
404
million and $
402
million, respectively.
As of April 1, 2023 and December
31, 2022, $
236
million and $
103
million, respectively, were outstanding.
At April 1, 2023 and December 31, 2022,
borrowings under all of these credit lines had a weighted average interest
rate of
7.55
% and
10.11
%, respectively.
Long-term debt
Long-term debt consisted of the following:
March 26,April 1,
December 25,31,
2023
2022
2021
Private placement facilities
 
$
699
$
706699
U.S. trade accounts receivable securitization
60360
105330
Various
 
collateralized and uncollateralized loans payable with interest,
in varying installments through 2023 at interest rates
ranging from
00.00
% to
4.273.65
% at March 26, 2022April 1, 2023 and
 
ranging from
2.620.00
% to
4.273.50
% at December 25, 202131, 2022
108
47
Finance lease obligations
79
710
Total
 
7761,076
8221,046
Less current maturities
 
(3)(55)
(11)(6)
Total long-term debt
 
$
7731,021
$
8111,040
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
(unaudited
)
17
Private Placement Facilities
Our private placement facilities were amended oninclude
October 20, 2021four
 
to include
4
(previously
3
) insurance
companies, have a total facility amount of $
1.5
 
billion, (previously $and
1.0
billion), and are available on an
uncommitted basis at fixed rate economic
terms to be agreed upon at
the time of issuance, from
time to time
through
October 20, 2026
(previously
June 23, 2023
).
 
The facilities allow us to issue senior promissory notes to the
the lenders at a
fixed rate based on an agreed upon spread over applicable treasury notes
 
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
 
for general
corporate purposes, including
working capital and capital expenditures,
to refinance existing indebtedness,
and/or
to fund potential acquisitions.
 
The agreements provide, among other things, that we maintain
 
certain maximum
leverage ratios, and contain
restrictions relating to subsidiary indebtedness,
liens, affiliate transactions, disposal
of
assets and certain changes in
ownership.
 
These facilities contain make-whole provisions in the event that we
 
pay
off the facilities prior to the
applicable due dates.
The components of our private placement facility borrowings, aswhich
 
have a weighted average interest rate of
2.99
%, as of March 26, 2022April 1, 2023 are presented in the following
table:
Amount of
Borrowing
Borrowing
 
Date of Borrowing
Outstanding
Rate
Due Date
January 20, 2012
$
50
3.45
%
January 20, 2024
December 24, 2012
50
3.00
December 24, 2024
June 16, 2017
100
3.42
June 16, 2027
September 15, 2017
100
3.52
September 15, 2029
January 2, 2018
100
3.32
January 2, 2028
September 2, 2020
100
2.35
September 2, 2030
June 2, 2021
100
2.48
June 2, 2031
June 2, 2021
100
2.58
June 2, 2033
Less: Deferred debt issuance costs
(1)
Total
$
699
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
(unaudited
)
18
U.S. Trade Accounts Receivable Securitization
We have a facility agreement based on the securitization of our U.S. trade accounts receivable that is structured as
an asset-backed securitization program with pricing committed for up
 
to
three years
.
 
Our currentThis facility whichagreement has a
had a purchase limit of $
350
million, was scheduled to expire on
April 29, 2022
.
On October 20, 2021, we
amended our U.S. trade accounts receivable securitization facility to
increase the purchase limit to $
450
 
million
with
2two
 
banks as agents, and extend the expiration date toexpires on
October 18, 2024December 15, 2025
.
As of March 26, 2022April 1, 2023 and December
25, 2021, 31, 2022, the borrowings outstanding
under this securitization facility were
$
60360
million and $
330
 
million, and $
105
million,
respectively.
 
At March 26, 2022,April 1, 2023, the interest rate on borrowings under this
 
this facility was
based on the asset-backed
commercial paper rate of
0.534.99
% plus
0.75
%, for a combined rate of
1.285.74
%.
 
At
December 25, 2021,31, 2022, the interest rate
on borrowings under this facility was
based on the asset-backed commercial
paper rate of
0.194.58
% plus
0.75
%, for a
combined rate of
0.945.33
%.
If our accounts receivable collection pattern changes due to customers
 
either paying late or not making payments,
our ability to borrow under this facility may be reduced.
We are required to pay a commitment fee of
30
 
to
35
 
basis points depending upon program utilization.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
(unaudited
)
18
Note 8 – Income Taxes
For the three months ended March 26, 2022April 1, 2023 our effective tax rate was
24.023.8
% compared to
25.124.0
% for the prior year
period.
 
The difference between our effective tax rates and the federal statutory tax rate for
the three months ended
March 26, 2022 primarily relates to state and foreign income taxes and
interest expense as well as share-based
compensation.
The difference between our effective tax rate and the federal statutory tax rate for the threeprimarily
 
months
ended March 27, 2021 was primarily duerelates to state and
foreign income
taxes and interest expense.expense as well as stock-based compensation.
The total amount of unrecognized tax benefits, which are included in
 
“other liabilities” within our consolidatedcondensed
consolidated balance sheets, as of March 26, 2022April 1, 2023 and December 25, 2021 31, 2022
was $
8795
 
million and $
8494
 
million,
respectively, of
which $
7380
 
million and $
6980
 
million, respectively, would affect the effective tax rate if recognized.
 
It is possible that
the amount of unrecognized tax benefits will
change in the next 12
months, which may result in a
material impact
on our condensed consolidated statements of income.
All tax returns audited by the IRS are officially closed through 2016.2018.
 
The tax years subject to examination by the
IRS include years 20172019 and forward.
In addition, limited positions reported in the 2017 tax year are subject
to IRS
examination.
 
During the quarter ended December 25, 2021, we were notified by
 
by the IRS
that tax year 2019 was
selected for examination.
During the quarter ended September 26, 2020 we reached an agreement
with the Advanced Pricing Division on an
appropriate transfer pricing methodology for the years 2014-2025.
The objective of this resolution was to mitigate
future transfer pricing audit adjustments.
The total amounts of interest and penalties are classified as a component
 
of the provision for income taxes.
 
The
amount of tax interest expense was $
1
 
million for each of the three months ended April 1, 2023 and $
1
million for the three
months ended March 26, 2022 and March
27,
2021.2022.
 
The total amount of accrued interest is included in “Other liabilities,”“other
 
liabilities,” and was $
13
million as of March 26,
2022April 1, 2023 and $
12
 
million as of December 25, 2021.31, 2022.
The amount of penalties accrued for during
the periods presented were not material to our condensed consolidated financial
statements
.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
(unaudited
)
19
Note 9 – Plan of Restructuring
On August 1, 2022, we committed to a restructuring plan focused on
funding the priorities of the strategic plan and
streamlining operations and other initiatives to increase efficiency.
We expect this initiative to extend through
2023.
We are currently unable in good faith to make a determination of an estimate of the amount or range of
amounts expected to be incurred in connection with these activities, both with
respect to each major type of cost
associated therewith and with respect to the total cost, or an estimate of
the amount or range of amounts that will
result in future cash expenditures.
During the three months ended April 1, 2023, we recorded restructuring costs of
$
30
million primarily related to
severance and employee-related costs, accelerated amortization of right-of-use
lease assets and fixed assets, and
other lease exit costs.
This amount also includes $
1
million related to the disposal of an unprofitable U.S. business,
initiated during 2022 and completed during the three months ended April
1, 2023.
Restructuring costs recorded for the three months ended April 1, 2023 consisted
of the following (there were
no
restructuring costs for the three months ended March 26, 2022):
Three Months Ended April 1, 2023
Health-Care
Distribution
Technology
and
Value-Added
Services
Total
Severance and employee-related costs
$
17
$
3
$
20
Accelerated depreciation and amortization
7
-
7
Exit and other related costs
1
1
2
Loss on disposal of a business
1
-
1
Total restructuring
costs
$
26
$
4
$
30
The following table summarizes,
by reportable segment, the activity related to the liabilities associated
with our
restructuring initiatives
for the period ended April 1, 2023.
The remaining accrued balance of restructuring costs as
of April 1, 2023 is included in accrued expenses: other within our condensed
consolidated balance sheet.
Technology
and
Health Care
Value-Added
Distribution
Services
Total
Balance, December 31, 2022
 
NaN$
21
$
3
$
24
Restructuring costs
26
4
30
Non-cash asset impairment and accelerated
depreciation and amortization of right-of-use lease
assets and other long-lived assets
(7)
-
(7)
Cash payments and other adjustments
 
penalties were accrued for the periods presented.
(14)
(3)
(17)
Balance, April 1, 2023
$
26
$
4
$
30
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
1920
Note 910 – Legal Proceedings
Henry Schein, Inc. has been named as a defendant in multiple opioid related
lawsuits (currently
less than one-hundredone-
hundred and seventy-five
(
175
); in less than half of those cases one or more of Schein’s affiliated companiesHenry Schein, Inc.’s subsidiaries is also named as a defendant),defendant in a
whichnumber of those cases).
Generally, the lawsuits allege that the manufacturers of prescription opioid drugs engaged
in a false advertising campaign to
expand the market for such drugs and
their own market share and that the entities
in the supply chain (including
Henry Schein, Inc.) and its affiliated companies) reaped
financial rewards by refusing
or otherwise failing to monitor appropriately and restrict
the improper
distribution of those drugsdrugs.
. These actions
consist of some that have been consolidated within the MultiDistrict Litigation
 
within the
MultiDistrict Litigation (“MDL”) proceeding In Re National
Prescription
Opiate Litigation (MDL No. 2804; Case
No. 17-md-2804)
and are currently abated for discovery purposes,stayed, and others which
which remain pending in state courts
and are proceeding independently and outside
of the MDL.
 
At this time, the only
following cases are set for trial are: the action
filed by Mobile County Board of Health, et al., in Alabama state court, which
is currently set for a jury trial on
January 9, 2023; andtrial: the action filed by DCH Health Care Authority, et al. in Alabama state court, which
has been designated a bellwether with
eight
of
thirty-eight
plaintiffs set for a jury trial on July 24, 2023; and the
action filed by Florida Health Sciences Center, Inc. (and
38
other hospitals located throughout the State of Florida)
in Florida state court, which is
currently scheduled for a jury trial on March 20, 2023.
 
The court for the pending cases filed by hospitals in West
Virginia has indicated that it intends to set trials for all defendants in 2022.
However, as of this filing, the West
Virginia hospital cases against Henry Schein have not been set for trial.May 2025.
 
Of Henry Schein’s 20212022 net sales of
of approximately $
12.412.6
 
billion from continuing operations, sales of opioids represented
less than two-tenths of
1two-tenths
 
of 1
percent.
 
Opioids represent a
negligible part of our business.
 
We intend to defend ourselves vigorously against
these actions.
In August 2022, Henry Schein received a Grand Jury Subpoena from the United
States Attorney’s Office for the
Western District of Virginia,
seeking documents in connection with an investigation of possible
violations of the
Federal Food, Drug & Cosmetic Act by Butler Animal Health Supply, LLC (“Butler”), a former subsidiary of
Henry Schein.
The investigation relates to the sale of veterinary prescription drugs
to certain customers.
In
October 2022, Henry Schein received a second Grand Jury Subpoena
from the United States Attorney’s Office for
the Western District of Virginia.
The October Subpoena seeks documents relating to payments Henry
Schein
received from Butler or Covetrus, Inc. (“Covetrus”).
Butler was spun off into a separate company and became a
subsidiary of Covetrus in 2019 and is no longer owned by Henry Schein.
We are cooperating with the
investigation.
From time to time, we may become a party to other legal proceedings,
 
including, without limitation, product
liability claims, employment matters, commercial disputes, governmental
 
inquiries and investigations (which may
in some cases involve our entering into settlement arrangements or consent
 
decrees), and other matters arising out
of the ordinary course of our business.
 
While the results of any legal proceeding cannot be predicted with certainty,
in our opinion none of these other pending matters are currently anticipated
 
anticipated to have a material adverse effect on our
consolidated financial position, liquidity or results of operations.
As of March 26, 2022,April 1, 2023, we had accrued our best estimate of potential losses
 
relating to claims that were probable to
result in liability and for which we were able to reasonably estimate a
 
loss.
 
This accrued amount, as well as related
expenses, was not material to our financial position, results of operations
 
or cash flows.
 
Our method for
determining estimated losses considers currently available
facts, presently
enacted laws and regulations and other
factors, including probable recoveries from third parties.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
2021
Note 1011 – Stock-Based Compensation
Stock-based awards are provided to certain employees under the terms of
 
our 2020 Stock Incentive Plan and to
non-employee directors under the terms of our 2015 Non-Employee Director
 
Stock Incentive Plan (together, the
“Plans”).
 
The Plans are administered by the Compensation Committee of the Board
 
of Directors (the
“Compensation Committee”).
 
Historically, equity-based awards to our employees have been granted solely in the
form of time-based and performance-based restricted stock units (“RSUs”).
 
However, forwith the exception of our 2021 fiscalplan year in
lightin which non-qualified stock options were issued in place of the COVID-19 pandemic, the Compensation Committee determinedperformance-based
 
it would be difficult for management
to set a meaningful three-year cumulative earnings per share target as the goal applicableRSUs.
 
to performance-based
restricted stock unit awards as it had done in prior years.
Instead, the Compensation Committee set our equity-In 2022, we granted time-
based and performance-based RSUs, as well as non-qualified stock
options.
For our 2023 plan year, we returned to
granting our employees equity-based awards to employees for fiscal 2021solely in the form of time-based RSUs
 
and non-qualified stock options which
focus on stock value appreciation and retention instead of pre-established
performance goals.performance-based RSUs.
 
Our non-employee
non-employee directors continued to receive equity-based wards for fiscal 2021awards solely in the form
 
the form of time-based RSUs.
During
the three months ended March 26, 2022, the Compensation Committee
reinstated performance-based RSUs for
equity-based awards to employees for fiscal 2022 and awarded grants in
the form of time-based RSUs,
performance-based RSUs and non-qualified stock options.
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 to employees that primarily
vest (i) solely based on the recipient’s continued service over time, primarily with
four
-year cliff vesting and/or (ii)
based on achieving specified performance measurements and the recipient’s continued service over time, primarily
with
three
-year cliff vesting.
 
RSUs granted under the 2015 Non-Employee Director Stock Incentiveto our non-employee directors primarily are granted
 
Plan primarily
are granted with
12
-month
cliff vesting.
 
For these RSUs, we recognize the cost as compensation expense on
 
a
straight-line basis.
With respect to time-based RSUs, we estimate the fair value based on our closing stock price on the date of grant based on our closing
stock price at
the time of grant.
 
With respect to performance-based RSUs, the number of shares that ultimately vest and are
 
are
received by the
recipient is based upon our performance as measured against specified
 
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
 
based on our closing stock price at time of
grant.
Each of the Plans provide for certain adjustments to the performance
measurement in connection with awards under
the Plans.
 
the Plans and withWith respect to the performance
goals under the performance-based RSUs granted under our 2020 Stock
Incentive Plan, including adjustmentsuch
performance measurement adjustments relate to the
goals for significant events, including,
without limitation, acquisitions,
divestitures, new business ventures, certain
capital transactions (including share
repurchases), other differences in
budgeted average
outstanding shares (other
than those resulting from capital
transactions referred to above),
restructuring
costs, if any, certain litigation
settlements or payments, if any, changes in accounting principles or in
applicable laws or regulations, changes in
income tax rates in certain
markets, foreign exchange fluctuations, the
financial impact either positive or negative, of the difference in projected earnings
generated by COVID-19 test kits
(solely with respect to performance-based RSUs granted in the 2022 and
 
2023 plan years) and impairment charges
(solely with respect to performance-based RSUs granted in the 2023 plan
year), and unforeseen events or circumstances
circumstances affecting the Company.us.
Over the performance period, the number of shares of common stock that will
 
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
 
and the
related compensation cost
recognized as an expense will be based on our
actual performance metrics
as defined
under the Plans.
Stock options are awards that allow the recipient to purchase shares of our
 
common stock at a fixed price following
vesting of the stock options.
 
Stock options arewere granted at an exercise price equal to our closing stock price
 
price on the
date of grant.
 
Stock options issued beginning in 2021 and 2022 vest
one-third
 
per year based on the recipient’s continued
service, subject to the terms and conditions of the 2020 Stock Incentive Plan,
 
are fully vested
three years
 
from the
grant date and have a contractual term of
ten years
 
from the grant date, subject to earlier termination of the term
upon certain events.
 
Compensation expense for these stock options is recognized
 
using a graded vesting method.
 
We estimateestimated the fair value of stock options using the Black-Scholes valuation model.
 
During the three months
ended April 1, 2023 we did
no
t grant any stock options.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
(unaudited
)
21
In addition to equity-based awards granted in fiscal 2021 under the Company’s long-term incentive program, the
Compensation Committee granted a Special Pandemic Recognition Award under the 2020 Stock Incentive Plan to
recipients of performance-based RSUs under the 2018 long-term
incentive program.
The payout under the
performance-based restricted stock units granted under the fiscal 2018
long-term incentive program (the “2018
LTIP”) was negatively impacted by the global COVID-19 pandemic.
Given the significance of the impact of the
pandemic on the Company’s
three-year
EPS goal under such equity awards and the contributions made
by the
Company’s employees (including those who received such awards), on March 3, 2021, the Compensation
Committee granted a Special Pandemic Recognition Award to recipients of performance-based restricted stock
units under the 2018 LTIP who were employed by the Company on the grant date of the Special Pandemic
Recognition Award.
These time-based RSU awards 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 2020 Stock Incentive Plan, and are recorded as compensation
expense using a graded vesting
method.
The combination of the
20
% payout based on actual performance of the 2018 LTIP and the one-time
Special Pandemic Recognition Award granted in 2021 will generate a cumulative payout of
75
% of each recipient’s
original number of performance-based restricted stock units awarded in 2018
if the recipient satisfies the
two-year
vesting schedule commencing on the grant date.
Our accompanying condensed consolidated statements of income reflect
pre-tax share-based compensation expense
of $
12
million ($
9
million after-tax) and $
13
million ($
10
million after-tax) for the three months ended March 26,
2022 and March 27, 2021, respectively.
Total unrecognized compensation cost related to unvested awards as of March 26, 2022 was $
134
million, which is
expected to be recognized over a weighted-average period of approximately
2.6
years.
Our accompanying condensed consolidated statements of cash flows present
our stock-based compensation expense
as an adjustment to reconcile net income to net cash provided by operating
activities for all periods presented.
In
the accompanying consolidated statements of cash flows, there were
0
benefits associated with tax deductions in
excess of recognized compensation as a cash inflow from financing
activities for the three months ended March 26,
2022 and March 27, 2021, respectively.
The following weighted-average assumptions were used in determining
the most recent fair values of stock options
granted using the Black-Scholes valuation model:
2022
Expected dividend yield
0.0
%
Expected stock price volatility
27.20
%
Risk-free interest rate
2.20
%
Expected life of options (years)
6.00
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
22
Our accompanying condensed consolidated statements of income reflect
pre-tax share-based compensation expense
of $
10
million ($
7
million after-tax) and $
12
million ($
9
million after-tax) for the three months ended April 1, 2023
and March 26, 2022, respectively.
Total unrecognized compensation cost related to unvested awards as of April 1, 2023 was $
119
million, which is
expected to be recognized over a weighted average period of approximately
2.7
years.
Our accompanying condensed consolidated statements of cash flows present
our stock-based compensation expense
as an adjustment to reconcile net income to net cash provided by operating activities
for all periods presented.
In
the accompanying consolidated statements of cash flows, there were
no benefits associated with tax deductions in
excess of recognized compensation as a cash inflow from financing
activities for the three months ended April 1,
2023 and March 26, 2022, respectively.
We have not declared cash dividends on our stock in the past and we do not anticipate declaring cash dividends in
the foreseeable future.
The expected stock price volatility is based on implied volatilities
from traded options on
our stock, historical volatility of our stock, and other factors.
The risk-free interest rate is based on the U.S.
Treasury yield curve in effect at the time of grant in conjunction with considering the expected life of options.
The
six
-year expected life of the options was determined using the simplified
method for estimating the expected term
as permitted under SAB Topic 14.
Estimates of fair value are not intended to predict actual future events or
the
value ultimately realized by recipients of stock options, and subsequent
events are not indicative of the
reasonableness of the original estimates of fair value made by us.
The following table summarizes the stock option activity under the Plans
during the three
months ended March 26,
2022:April 1, 2023:
Stock Options
Weighted
Average
Weighted
Remaining
Average
Contractual
Aggregate
Exercise
Life inRemaining Contractual
 
 
Intrinsic
Shares
Price
YearsLife (in years)
 
Value
Outstanding at beginning of period
 
767,7171,117,574
$
63.2471.38
 
Granted
 
396,874-
86.27-
 
Exercised
 
(26,233)(10,897)
62.71
 
Forfeited
 
(1,688)(5,911)
62.7177.31
 
Outstanding at end of period
 
1,136,6701,100,766
$
71.3071.44
 
9.38.3
 
$
1913
Options exercisable at end of period
 
220,065572,132
$
62.7168.11
 
Weighted Average
Weighted
Average
Average
Remaining
Aggregate
Number of
Exercise
Remaining Contractual
Intrinsic
Options
Price
Life (in years)
Value
Vested
 
or expected to vest
891,140520,781
$
73.6675.22
9.48.5
$
134
The following tables summarize the activity of our unvested RSUs for
 
the three months ended March 26, 2022:April 1, 2023:
Time-Based Restricted Stock Units
Performance-Based Restricted Stock Units
Weighted Average
Weighted Average
 
Grant Date Fair
Intrinsic Value
Grant Date Fair
Intrinsic Value
Shares/Units
Value Per Share
Per Share
Shares/Units
Value Per Share
Per Share
Outstanding at beginning of period
 
1,945,8621,756,044
$
58.7966.59
520,916
$
60.23
Granted
 
427,978395,750
86.4377.75
465,260
79.66
Vested
 
(489,549)(387,302)
54.5761.13
(627,596)
60.66
Forfeited
 
(7,374)(34,843)
61.1868.16
(39,463)
74.48
Outstanding at end of period
 
1,876,9171,729,649
$
66.3070.38
$
87.8581.54
Performance-Based Restricted Stock Units
Weighted Average
Grant Date Fair
Intrinsic Value
Shares/Units
Value Per Share
Per Share
Outstanding at beginning of period
674,753319,117
$
59.63
Granted
460,896
70.93
Vested
(386,612)
59.08
Forfeited
(1,752)
60.56
Outstanding at end of period
747,28568.96
$
56.77
$
87.8581.54
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
23
Note 1112 – Redeemable Noncontrolling Interests
Some minority stockholders in certain of our subsidiaries have the right,
 
at certain times, to require us to acquire
their ownership interest in those entities at fair value.
 
Accounting Standards Codification Topic 480-10 is
applicable for noncontrolling interests where we are or may be required
 
to purchase all or a portion of the
outstanding interest in a consolidated subsidiary from the noncontrolling
 
interest holder under the terms of a put
option contained in contractual agreements.
 
The components of the change in the redeemable noncontrolling
interests for the three months ended March 26, 2022April 1, 2023 and the year ended December
 
25, 202131, 2022 are presented in the
following table:
 
March 26,April 1,
December 25,31,
2023
2022
2021
Balance, beginning of period
 
$
613576
$
328613
Decrease in redeemable noncontrolling interests due to acquisitions of
noncontrolling interests in subsidiaries
(3)(8)
(60)(31)
Increase in redeemable noncontrolling interests due to business
acquisitions
03
1894
Net income attributable to redeemable noncontrolling interests
 
4
2321
Dividends declared
 
(5)(4)
(21)
Effect of foreign currency translation gain (loss) attributable to
redeemable noncontrolling interests
 
12
(6)
Change in fair value of redeemable securities
 
3(3)
160(4)
Balance, end of period
 
$
613570
$
613576
Note 1213 – Comprehensive Income
Comprehensive income includes certain gains and losses that, under U.S.
 
GAAP,
 
are excluded from net income as
such amounts are recorded directly as an adjustment to stockholders’
 
equity.
 
The following table summarizes our Accumulated other comprehensive loss, net of
 
applicable taxes as of:
March 26,April 1,
December 25,31,
2023
2022
2021
Attributable to Redeemable noncontrolling interests:
Foreign currency translation adjustment
 
$
(30)(35)
$
(31)(37)
Attributable to noncontrolling interests:
Foreign currency translation adjustment
$
(1)
$
(1)
Attributable to Henry Schein, Inc.:
Foreign currency translation adjustment
$
(153)(213)
$
(155)(236)
Unrealized lossgain from foreign currency hedging activities
 
(1)2
(2)5
Pension adjustment loss
 
(14)(2)
(14)(2)
Accumulated other comprehensive loss
 
$
(168)(213)
$
(171)(233)
Total Accumulated
 
other comprehensive loss
 
$
(198)(249)
$
(202)(271)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
24
The following table summarizes the components of comprehensive income, net
 
of applicable taxes as follows:
Three Months Ended
April 1,
March 26,
March 27,2023
2022
2021
Net income
 
$
186128
$
175186
Foreign currency translation gain (loss)
25
3
(38)
Tax effect
 
0-
0-
Foreign currency translation gain (loss)
25
3
(38)
Unrealized gain (loss) from foreign currency hedging activities
 
2(4)
42
Tax effect
 
(1)1
(1)
Unrealized gain (loss) from foreign currency hedging activities
 
1
3
Pension adjustment gain
0
1
Tax effect
0
0
Pension adjustment gain
0(3)
1
Comprehensive income
 
$
190150
$
141190
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 lossgain during the three months ended MarchApril 1,
 
26, 20222023 and three months ended March 27,26,
20212022 was primarily impacted bydue to changes in foreign currency exchange rates
 
rates of the Euro, British Pound, BrazilianAustralian
Dollar, Brazilian Real, AustralianNew Zealand Dollar and Canadian Dollar.
The following table summarizes our total comprehensive income, net of
 
applicable taxes as follows:
Three Months Ended
April 1,
March 26,
March 27,2023
2022
2021
Comprehensive income attributable to
Henry Schein, Inc.
 
$
184141
$
138184
Comprehensive income attributable to
noncontrolling interests
 
13
21
Comprehensive income attributable to
Redeemable noncontrolling interests
 
56
15
Comprehensive income
 
$
190150
$
141190
Note 13 – Plans of Restructuring
On November 20, 2019, we committed to a contemplated restructuring
 
initiative intended to mitigate stranded costs
associated with the spin-off of our animal health business and to rationalize operations
 
and to provide expense
efficiencies.
 
These restructuring activities were completed in 2021.
During the three months ended March 27, 2021, we recorded restructuring
 
costs of $
3
 
million.
 
As of March 26,
2022 and December 25, 2021, the remaining accrued balance for restructuring
 
costs was $
3
 
million and $
4
 
million,
respectively
.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
25
Note 14
 
–
Earnings Per Share
Basic earnings per share is computed by dividing net income attributable
 
to Henry Schein, Inc. by the weighted-
average number of common shares outstanding for the period.
 
Our diluted earnings per share is computed similarly
to basic earnings per share, except that it reflects the effect of common shares issuable
 
for presently unvested RSUs
restricted stock and RSUs and upon exercise of stock options using
the treasury stock method
in periods in which
they have a dilutive effect.
A reconciliation of shares used in calculating earnings per basic and diluted
 
diluted share follows:
Three Months Ended
April 1,
March 26,
March 27,2023
2022
2021
Basic
 
137,296,581131,365,789
142,298,387137,296,581
Effect of dilutive securities:
Stock options restricted stock and restricted stock units
 
1,940,8911,674,097
1,099,3371,940,891
Diluted
 
139,237,472133,039,886
143,397,724139,237,472
The effectnumber of weighted average assumed exercise of stock options outstanding totaling
76,597
and
216,482
as of
March 26, 2022 and March 27, 2021, respectively,antidilutive securities that were excluded from the calculation
of diluted weighted average common
common shares outstanding because the effect would have been antidilutive.
The effect of weighted average non-vested restricted stock units outstanding totaling
70,923
and
6,315
are as of Marchfollows:
26, 2022 and March 27, 2021,
respectively, were excluded from the calculation of diluted weighted average
common shares outstanding because the effect would have been antidilutive.
Note 15 – Supplemental Cash Flow Information
Cash paid for interest and income taxes was:
Three Months Ended
April 1,
March 26,
March 27,2023
2022
2021Stock options
Interest422,190
$76,597
8Restricted stock units
$18,305
870,923
Income taxesTotal anti-dilutive
securities excluded from EPS computation
21440,495
13147,520
During the three months ended March 26, 2022 and March 27, 2021,
 
we had a $
2
 
million and a $
4
 
million of non-
cash net unrealized gains related to foreign currency hedging activities,
 
respectively.
 
Table of Contents
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
26
Note 15 – Supplemental Cash Flow Information
Cash paid for interest and income taxes was:
Three Months Ended
April 1,
March 26,
2023
2022
Interest
$
13
$
8
Income taxes
21
21
During the three months ended April 1, 2023 and March 26, 2022, we
had $
(4)
million and $
2
million of non-cash
net unrealized gains (losses) related to foreign currency hedging activities,
respectively.
Note 16 – Related Party Transactions
In connection with the formation of Henry Schein One, LLC, our joint venture
 
with Internet Brands, which was
formed on July 1, 2018, we entered into a
ten-year
 
royalty agreement with Internet Brands whereby we will pay
Internet Brands approximately $
31
 
million annually for the use of their intellectual property.
 
During the three
months ended April 1, 2023 and March 26, 2022, and March 27, 2021, we recorded $
8
 
million and $
89
 
million, respectively, in
connection with costs related to this royalty agreement.
 
As of March 26, 2022April 1, 2023 and December 25, 2021,31, 2022, Henry Schein
Schein One, LLC had a net receivablepayable balance due fromto Internet Brands of
$
112
 
million and $
98
 
million, respectively, comprised
comprised of amounts related to results of operations and the royalty agreement.
The components of this payable are recorded
within accrued expenses: other, within our condensed consolidated balance sheets.
During our normal course of business, we have interests in entities that we
 
account for under the equity accounting
method.
 
During the three months ended April 1, 2023 and March 26, 2022, and March 27,
 
2021, we recorded net sales of $
168
 
million and
and $
1612
 
million, respectively, to such entities.
 
During the three months ended April 1, 2023 and March 26, 2022, and March 27,
 
2021,we
we purchased $
52
 
million and $
54
 
million, respectively from such entities.
 
At March 26, 2022April 1, 2023 and December 25,31, 2022, we
2021, we had inan aggregate of $
4034
 
million and $
4536
 
million, respectively, due from our equity affiliates, and $
96
 
million and $
96
million, respectively, due to our equity affiliates,affiliates.
Certain of our facilities related to our acquisitions are leased from employees
and minority shareholders.
These
leases are classified as operating leases and have a remaining lease term
ranging from less than
one year
to
9
years
.
As of April 1, 2023, current and non-current liabilities associated with related
party operating leases were $
4
million and $
15
million, respectively.
Related party leases represented
6.1
% and
5.6
% of the total current and non-
current operating lease liabilities.
27
ITEM 2.
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Cautionary Note Regarding Forward-Looking Statements
In accordance with the “Safe Harbor” provisions of the Private Securities
 
Litigation Reform Act of 1995, we
provide the following cautionary remarks regarding important factors
 
that, among others, could cause future results
to differ materially from the forward-looking statements, expectations and assumptions
 
expressed or implied
herein.
 
All forward-looking statements made by us are subject to
 
risks and uncertainties and are not guarantees of
future performance.
 
These forward-looking statements involve known and unknown
 
risks, uncertainties and other
factors that may cause our actual results, performance and achievements
 
or industry results to be materially
different from any future results, performance or achievements expressed or implied by such
 
forward-looking
statements.
 
These statements are generally identified by the use of such
 
terms as “may,” “could,” “expect,”
“intend,” “believe,” “plan,” “estimate,” “forecast,” “project,” “anticipate,”
 
“to be,” “to make” or other comparable
terms.
 
Factors that could cause or contribute to such differences include, but are not limited
 
to, those discussed in
the documents we file with the Securities and Exchange Commission
 
(SEC), including our Annual Report on Form
10-K.
Forward looking statements include the overall impact of the Novel Coronavirus
 
Coronavirus Disease 2019 (COVID-19)
on the Company, itsus, our results of operations, liquidity and financial condition (including
any estimates of the impact
on these
items), the rate and consistency with which dental and other practices
 
resume or maintain normal
operations in the
United States and internationally, expectations regarding personal protective equipment (“PPE”)
PPE products and COVID-19 related product sales and
inventory levels, whether additional
resurgences or variants of the virus
will adversely impact
the resumption of
normal operations, whether vaccine
mandates will adversely impact the
Company (by disrupting our workforce and/or business), whether supply chain
disruptions will adversely impact
our business, the impact of integration
and restructuring programs as well as of any future acquisitions, general economic
 
future acquisitions,conditions including exchange
rates, inflation and recession, and more generally current expectations
expectations regarding performance in current and future
periods.
 
Forward looking statements also include the (i)
our ability of the Company to
have continued access to a variety of
COVID-19 test types and expectations regarding COVID-19
 
test types, expectations regarding
COVID-19 test sales, demand and inventory levels as well
as the efficacy or relative efficacy of the test results
given that the test efficacy has not been, or will not have been, independently
verified under normal FDA
procedures and (ii)
potential for the Companyus to distribute the COVID-19
vaccines and ancillary supplies.
Risk factors and uncertainties that could cause actual results to differ materially from current
 
and historical results
include, but are not limited to: risks associated with COVID-19
 
and any variants thereof, as well as other disease
outbreaks, epidemics, pandemics, or similar wide-spread public health concerns
 
and other natural disasters; our
dependence on third parties for the manufacture and supply of our products;
 
our ability to develop or acquire and
maintain and protect new products (particularly technology products) and
 
technologies that achieve market
acceptance with acceptable margins; transitional challenges associated with acquisitions,
 
dispositions and joint
ventures, including the failure to achieve anticipated synergies/benefits; legal, regulatory, compliance,
cybersecurity, financial
and tax risks associated with
acquisitions, dispositions and joint ventures; certain provisions
in our governing
documents that may discourage
third-party acquisitions
of us; adverse changes in supplier rebates
or other purchasing incentives; risks related to the sale of corporate brand products;
effects of a highly competitive (including,
(including, without
limitation, competition from third-
partythird-party online commerce
sites) and consolidating market; the
repeal or
judicial prohibition on implementation of the
Affordable Care Act; changes in the health
care industry;
risks from expansion of
customer purchasing power and multi-tiered
multi-tiered costing structures; increases in shipping costs
for our products
or other service issues with our third-
partythird-party shippers; general
global and domestic macro-economic
and political conditions, including inflation, deflation, recession, fluctuations
 
includingin energy pricing and the value of the
U.S. dollar as compared to foreign currencies, and changes to other economic
indicators, international trade agreements,
agreements, potential trade barriers and terrorism; failure to comply with existing and
 
and future regulatory
requirements; risks
associated with the EU Medical Device Regulation; failure
to comply with
laws and regulations
relating to health
care fraud or other laws and regulations;
failure to comply with laws
and regulations relating to
the collection,
storage and processing of sensitive personal information
or standards in electronic
health records or transmissions;
transmissions; changes in tax legislation; risks related to product liability, intellectual property and other claims; litigation
litigation risks;
new or unanticipated litigation developments and the status of litigation
 
litigation matters; risks associated with
with customs policies or legislative import restrictions; cyberattacks
or other
privacy or data security breaches; risks
associated with our global operations; our dependence on our senior management,
 
employee hiring and retention,
and our relationships with customers, suppliers and manufacturers;
 
and disruptions in financial markets.
 
The order
in which these factors appear should not be construed to indicate their
 
relative importance or priority.
28
We caution that these factors may not be exhaustive and that many of these factors are beyond our ability to control
or predict.
 
Accordingly, any forward-looking statements contained herein should not be relied upon as a prediction
of actual results.
 
We undertake no duty and have no obligation to update forward-looking statements.statements except as
required by law.
Where You
 
Can Find Important Information
We may disclose important information through one or more of the following channels: SEC filings, public
conference calls and webcasts, press releases, the investor relations
 
page of our website (www.henryschein.com)
and the social media channels identified on the Newsroom page of our website.
Recent Developments
COVID-19 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
2020 and 2021.
The impact of COVID-19 had a
material adverse effect on our business, results of operations and cash flows in the
second quarter of 2020.
In the
latter half of the 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 year ended December 25, 2021, patient traffic levels returned to
levels approaching pre-pandemic levels.31, 2022 we experienced a decrease
 
Demand for dental products and certain medical products throughout 2021
was driven byin the sales of PPE and COVID-19 test kits and other COVID-19
related products.
During the three months
ended March 26, 2022, with the exception of COVID-19 test kits, we experienced
a decrease in the sales volume of
PPE and COVID-19 related products.kits.
 
During the three months ended March 26, 2022,April 1, 2023, we continued to experience
 
as a resultdecrease in the sales of an increase in COVID-19 variants, primarily inPPE and
Europe and to a lesser extent in North America, we experienced lower dental
patient traffic, which began to
increase as the quarter progressed.
Although some COVID-19 restrictions are still in place in parts of Europe,
we
expect these markets to recover but at a slower pace.
In contrast to our dental business, during the three months
ended March 26, 2022, our medical business benefited from an increase
in sales volume of COVID-19 test kits compared with the same period in the prior
year and we expect further decreases in sales in
2023 compared to the prior year.
The impact from inflation, including manufacturer price increases excluding PPE
products, was slightly more
pronounced in Europe than in North America.
Though inflation impacts both our revenues and costs, the
depth and
point-of-care diagnostics.breadth of our product portfolio often allows us to offer lower-cost national brand solutions or
corporate brand
alternatives to our more price-sensitive customers who are unable
to absorb price increases, thus positioning us to
protect our gross profit.
Our condensed consolidated financial statements reflect estimates and assumptions
 
assumptions made by us that affect, among
other things, our goodwill, long-lived asset and definite-lived intangible
 
asset valuation; inventory valuation; equity
investment valuation; assessment of the annual effective tax rate; valuation of
 
deferred income taxes and income
tax contingencies; the allowance for doubtful accounts; hedging activity;
 
supplier rebates; measurement of
compensation cost for certain share-based performance awards and cash bonus
 
plans; and pension plan
assumptions.
 
Due to the significant uncertainty surrounding the future impact of
COVID-19, our judgments
regarding estimates and impairments could change in the future.
There is an ongoing risk that the consequences of 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.
29
Executive-Level Overview
Henry Schein, Inc. is a solutions company for health care professionals powered
 
by a network of people and
technology.
 
We believe we are the world’s largest
 
largest provider of health care products and services primarily to
office-
based dental and medical practitioners, as well as alternate sites of care.
 
We
serve more than one million customers
worldwide including dental practitioners, laboratories, physician practices, and
 
and ambulatory surgery centers, as well
as government, institutional health care clinics and other alternate care clinics.
 
We
believe that we have a strong
brand identity due to our more than 8990 years of experience distributing health
 
care products.
We are headquartered in Melville, New York,
 
employ nearlymore than 22,000 people (of which approximately 10,60010,700
 
are
based outside of the United States) and have operations or affiliates in 32 countries
 
and territories.
 
Our broad
global footprint has evolved over time through our organic success as well as
 
through contribution from strategic
acquisitions.
29
We
have established strategically located distribution centers around
the world to enable us to better serve our
customers and increase our operating efficiency.
 
This infrastructure, together with broad product and service
offerings at competitive prices, and a strong commitment to customer service, enables
 
enables us to be a single source of
supply for our customers’ needs.
While our primary go-to-market strategy is in our capacity as a distributor, we also market and sell our own
corporate brand portfolio of cost-effective, high-quality consumable merchandise products,
manufacture certain
dental
dental specialty products and solutions in the areas of implants, orthodontics and endodontics,
 
and endodontics.repackage/relabel prescription
drugs and/or devices.
 
We
have
achieved scale in
these global businesses primarily through acquisitions as manufacturers
 
as
manufacturers of these products typically do not utilize a
distribution channel
to serve customers.
We
conduct our business through two reportable segments: (i) health
care distribution and (ii) technology and
value-added services.
 
These segments offer different products and services to the same customer base.
 
Our global
dental businesses serve office-based dental practitioners, dental laboratories, schools, government
 
and other
institutions.
 
Our
global medical businesses serve office-based medical practitioners,physician offices, urgent care centers, ambulatory care sites,
 
surgeryemergency
medical technicians, dialysis centers, home health, federal and state governments
and large enterprises, such as
group practices and integrated delivery networks, among other alternate-careproviders
across a wide range of specialties.
settings and other institutions.
The health care distribution reportable segment, aggregatescombining our global dental and
 
dental and medical operating segments.
Thissegments,
segment distributes consumable products, small equipment, laboratory
products, large equipment, equipment
repair services,
services, branded and generic pharmaceuticals, vaccines, surgical products, dental specialty
 
specialty products (including implant,
implant, orthodontic and endodontic products), diagnostic tests, infection-control products,
 
PPE products PPE and vitamins.
 
Our global technology and value-added services business provides software, technology
 
technology and other value-added
services to health care practitioners.
 
Our technology business offerings include practice management software
systems for dental and medical practitioners.
 
Our value-added practice solutions include practice consultancy,
education, revenue cycle management and financial services on a non-recourse
 
basis, e-services, practice
technology, network and hardware services, as well as consulting, and continuing education services for
practitioners.
A key element to grow closer to our customers is our One Schein initiative, which
 
is a unified go-to-market
approach that enables practitioners to work synergistically with our supply chain,
 
equipment sales and service and
other value-added services, allowing our customers to leverage the
 
the combined value that we offer through a single
program.
 
Specifically, One Schein provides customers with streamlined access to our comprehensive offering of
national brand products, our private labelcorporate brand products and proprietary specialty
 
products and solutions (including
implant, orthodontic and endodontic products).
 
In addition, customers have access to a wide range of services,
including software and other value-added services.
30
Industry Overview
In recent years, the health care industry has increasingly focused on cost containment.
 
This trend has benefited
distributors capable of providing a broad array of products and services at low
 
low prices.
 
It also has accelerated the
growth of HMOs, group practices, other managed care accounts and collective buying
 
buying groups, which, in addition to
their emphasis on obtaining products at competitive prices, tend to favor distributors
 
favor distributors capable of providing
specialized management information support.
 
We
believe that the trend towards cost containment has the potential
to favorably affect demand for technology solutions, including software, which can
 
enhance the efficiency and
facilitation of practice management.
Our operating results in recent years have been significantly affected by strategies
 
and transactions that we
undertook to expand our business, domestically and internationally, in part to address significant changes
in the
health care industry, including consolidation of health care distribution companies, health care reform, trends
toward managed care, cuts in Medicare and collective purchasing arrangements.
Our current and future results have been and could be impacted by
the COVID-19 pandemic, the current economic
environment and continued economic and public health uncertainty.
Since the onset of the COVID-19 pandemic in
early 2020, we have been carefully monitoring its impact on our global
operations and have taken appropriate steps
30
to minimize the risk to our employees.
We have seen and expect to continue to see changes in demand trends for
some of our products and services, supply chain challenges and labor
challenges, as rates of infection fluctuate, new
strains or variants of COVID-19 emerge and spread, vaccine uptake and mandates
increase and change,
governments adapt their approaches to combatting the virus (including
without limitation, vaccine mandates), and
local conditions change across geographies.
For example, vaccine mandates affecting our workforce, whether
imposed through government regulations or contracts with governmental authorities
or other customers, could
potentially cause staffing shortages if employees choose not to comply as well as
other consequences to our
business or operations, managing and tracking vaccination status and ongoing
testing for exempt employees could
potentially increase our costs, as could addressing inconsistent COVID-19
vaccination mandates.
As a result, we
expect to see continued volatility through at least the duration of the pandemic.
Industry Consolidation
The health care products distribution industry, as it relates to office-based health care practitioners, is fragmented
and diverse.
 
The industry ranges from sole practitioners working out of
 
of relatively small offices to group practices
or service organizations ranging in size from a few practitioners to a large number of practitioners who have
combined or otherwise associated their practices.
Due in part to the inability of office-based health care practitioners to store and manage
 
large quantities of supplies
in their offices, the distribution of health care supplies and small equipment to office-based health
 
care practitioners
has been characterized by frequent, small quantity orders, and a need for rapid,
 
rapid, reliable and substantially complete
order fulfillment.
 
The purchasing decisions within an office-based health care practice
are typically
made by the
practitioner or an administrative assistant.
 
Supplies and small equipment are generally purchased from more
 
than
one distributor, with one generally serving as the primary supplier.
The trend of consolidation extends to our customer base.
 
Health care practitioners are increasingly seeking to
partner, affiliate or combine with larger entities such as hospitals, health systems, group practices or physician
hospital organizations.
 
In many cases, purchasing decisions for consolidated groups
 
are made at a centralized or
professional staff level; however, orders are delivered to the practitioners’ offices.
We
believe that consolidation within the industry will continue to
result in a number of distributors, particularly
those with limited financial, operating and marketing resources, seeking to
 
to combine with larger companies that can
provide growth opportunities.
 
This consolidation also may continue to result in distributors seeking
 
to acquire
companies that can enhance their current product and service offerings or provide
 
opportunities to serve a broader
customer base.
Our trend with regardapproach to acquisitions and joint ventures has been to expand
our role as
a provider of products and services
services to the health care industry.
 
This trend has resulted in our expansion into service areas that complement
 
our existing
existing operations and provide opportunities for us to develop synergies with, and
thus strengthen, the acquired
businesses.
As industry consolidation continues, we believe that we are positioned
 
to capitalize on this trend, as we believe we
have the ability to support increased sales through our existing infrastructure, although
 
although there can be no assurances
that we will be able to successfully accomplish this.
 
We
also have invested in expanding
our sales/marketing
infrastructure to include a focus on building relationships with decision
 
makers who do not reside in the office-
based practitioner setting.
As the health care industry continues to change, we continually evaluate possible
 
candidates for joint venture or
acquisition and intend to continue to seek opportunities to expand our
 
role as a provider of products and services to
the health care industry.
 
There can be no assurance that we will be able to successfully pursue
 
any such
opportunity or consummate any such transaction, if pursued.
 
If additional transactions are entered into or
31
consummated, we would incur merger and/or acquisition-related costs, and there
 
there can be no assurance that the
integration efforts associated with any such transaction would be successful.
In response to the COVID-19
pandemic, we had taken a range of actions to preserve cash, including
the temporary suspension of significant
31
acquisition activity.
During the second half of 2020, as global conditions improved, we resumed
our acquisition
strategy.
Aging Population and Other Market Influences
The health care products distribution industry continues to experience growth
 
due to the aging population,
increased health care awareness, the proliferation of medical technology
 
and testing, new pharmacology treatments,
and expanded third-party insurance coverage, partially offset by the effects of unemployment on insurance
coverage.
In addition, the physician market continues to benefit from
the shift
of procedures and diagnostic testing
from acute care settings to alternate-care sites, particularly physicians’
 
offices.
According to the U.S. Census Bureau’s International Database, between 2023 and 2033, the 45 and older
population is expected to grow by approximately 11%.
 
Between 2023 and 2043, this age group is expected to grow
by approximately 21%.
This compares with expected total U.S. population growth
rates of approximately 6%
between 2023 and 2033 and approximately 11% between 2023 and 2043.
According to the U.S. Census Bureau’s International Database, in 20212023 there were more than six and a halfare approximately seven million
Americans aged 85 years or older, the segment of the population most in need of long-term care
 
and elder-care
services.
By the year 2050, that number is projected to nearly triple to approximately
 
19 million.
The population
aged 65 to 84 years is projected to increase by approximately 32%23% during
 
the same period.
As a result of these market dynamics, annual expenditures for health
 
care services continue to increase in the
United States.
 
We believe that demand for our products and services will grow while continuing to be impacted by
current and future operating, economic, and industry conditions.
The Centers
for Medicare and Medicaid Services,
or CMS, published “National Health Expenditure Data” indicating that
 
that total national health care spending reached
approximately $4.1$4.3 trillion in 2020,2021, or 19.7%18.3% of the nation’s gross domestic product, the benchmark
 
measure for
annual production of goods and services in the United States.
 
Health care spending is projected to reach
approximately $6.2$6.8 trillion in 2028, approximately 19.7%by 2030, or 19.6% of the
nation’s projected gross domestic product.
The
latest projections begin after the latest historical year 2018 and go through
2028. These projections do not take into
account the impacts of COVID-19 because of the timing of the report and
the highly uncertain nature of the
pandemic.
Government
Certain of our businesses involve the distribution, manufacturing, importation, exportation,
 
exportation, marketing and sale of, and
and/or third party
payment for, pharmaceuticals andand/or medical devices, and in this regard, we are subject to extensive
 
to
extensive local, state,
federal and foreign governmental laws and regulations, including
 
including as applicable to our
wholesale distribution of
pharmaceuticals and medical devices, manufacturing
activities, and as part of our
specialty home medical
supply business that distributes and
sells medical equipment
and supplies directly to
patients.
 
The federal governmentFederal, state and statecertain foreign governments have also
increased enforcement
activity in the health care
sector, particularly in areas of fraud and abuse, anti-bribery
and
corruption, controlled substances handling,
medical
device regulations and
data privacy and security standards.
Certain of our businesses are subject to various additional federal, state,
local and foreign laws and regulations,
including with respect to the sale, transportation, storage, handling and
disposal of hazardous or potentially
hazardous substances, and safe working conditions.
In addition, certain of our businesses must operate in
compliance with
a variety of burdensome and complex billing
and record-keeping
requirements in order to
substantiate claims for payment under
federal, state and commercial healthcare
healthcare reimbursement programs.
 
One of
these businesses was recently suspended in October 2021 by CMS from receiving
 
receiving
payments from Medicare, although it is was
permitted to continue to perform
and bill for Medicare services.
 
TheSuch suspension was terminated on September 30,
amounts billed are being deposited in an escrow account pending resolution
of an audit.
The Company has not
recognized revenue for these services and has currently deferred slightly over $8
million in revenue (including $4
million deferred during the three months ended March 26, 2022 and slightly
over $4 million deferred during the
three months ended December 25, 2021).2022.
Government and private insurance programs fund a large portion of the total cost of medical care,
 
care, and there have
been efforts to limit such private and government insurance programs, including efforts, thus far
 
thus far unsuccessful, to
seek repeal of the entire United States Patient Protection and Affordable Care Act,
 
as amended by the Health Care
and Education Reconciliation Act, each enacted in March 2010 (as amended,
 
the “ACA”).
 
In addition, activities to
control medical costs, including laws and regulations lowering reimbursement
 
rates for pharmaceuticals, medical
devices and/or medical treatments or services, are ongoing.
Many of these laws and regulations are subject to
change and their evolving implementation may impact our operations and
our financial performance.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
32
devices and/or medical treatments or services, are ongoing.
Many of these laws and regulations are subject to
change and their evolving implementation may impact our operations and our
financial performance.
Our businesses are generally subject to numerous laws and regulations that could
 
impact our financial performance,
and failure to comply with such laws or regulations could have a material adverse
 
material adverse effect on our business.
A more detailed discussion of governmental laws and regulations
 
is included in Management’s Discussion &
Analysis of Financial Condition and Results of Operations, contained
 
contained in our Annual Report on Form 10-K for the
fiscal year ended December 25, 2021,31, 2022, filed with the SEC on February 15, 2022.21, 2023.
Results of Operations
The following table summarizestables summarize the significant components of our operating
 
results and cash flows for the three
months ended April 1, 2023 and March 26, 2022 and March 27, 2021:2022:
Three Months Ended
April 1,
March 26,
March 27,2023
2022
2021
Operating results:
Net sales
 
$
3,1793,060
$
2,9253,179
Cost of sales
 
2,2062,094
2,0342,206
Gross profit
 
973966
891973
Operating expenses:
Selling, general and administrative
 
682717
614682
Depreciation and amortization
4744
4447
Restructuring costs
 
-30
3-
Operating income
$
244175
$
230244
Other expense, net
 
$
(5)(12)
$
(4)(5)
Net income
186128
175186
Net income attributable to Henry Schein, Inc.
 
181121
166181
Three Months Ended
April 1,
March 26,
March 27,2023
2022
2021
Cash flows:
 
Net cash provided by operating activities
$
9327
$
6393
Net cash used in investing activities
(27)(39)
(223)(27)
Net cash used inprovided by (used in) financing activities
21
(62)
(120)
Plans
33
Plan of Restructuring
On November 20, 2019,August 1, 2022, we committed to a contemplated restructuring plan focused on
 
funding the priorities of the strategic plan and
streamlining operations and other initiatives to increase efficiency.
We expect this initiative intended to mitigate stranded costsextend through
2023.
We are currently unable in good faith to make a determination of an estimate of the amount or range of
amounts expected to be incurred in connection with these activities, both with
respect to each major type of cost
associated therewith and with respect to the spin-offtotal cost, or an estimate of our animal health business and to rationalize operations
 
and to provide expensethe amount or range of amounts that will
efficiencies.
These restructuring activities were completedresult in 2021.future cash expenditures.
During the three months ended March 27, 2021,April 1, 2023, we recorded restructuring costs of
 
$30 million primarily related to
severance and employee-related costs, accelerated amortization of $3 million.right-of-use
 
As lease assets and fixed assets, and
other lease exit costs.
This amount also includes $1 million related to the disposal
of March 26,an unprofitable U.S. business,
initiated during 2022 and December 25, 2021,completed during the remaining accrued balance for restructuringthree months ended April
 
costs was $3 million and $4 million,
respectively.1, 2023.
 
 
 
 
33
Three Months Ended March 26, 2022 Compared to Three Months Ended March 27, 2021
Net Sales
Net sales were as follows:
March 26,
% of
March 27,
% of
Increase
2022
Total
2021
Total
$
%
Health care distribution
(1)
Dental
$
1,828
57.5
%
$
1,789
61.2
%
$
39
2.2
%
Medical
1,172
36.9
991
33.9
181
18.3
Total health care distribution
3,000
94.4
2,780
95.1
220
7.9
Technology and value-added services
(2)
179
5.6
145
4.9
34
23.4
Total
$
3,179
100.0
%
$
2,925
100.0
%
$
254
8.7
(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,
practice consultancy, education, revenue cycle management and financial services on a non-recourse basis, e-services, continuing
education services for practitioners, consulting and other services.
The 8.7% increase in net sales includes an increase of 10.1% in local currency
sales (7.7% increase in internally
generated sales and 2.4% growth from acquisitions) partially offset by a decrease
of 1.4% related to foreign
currency exchange.
We estimate that sales of PPE and COVID-19 related products were approximately $487
million, an increase of 4.4% versus the prior year.
Excluding PPE and COVID-19 related products, the estimated
increase in internally generated local currency sales was 8.9%.
The 2.2% increase in dental net sales includes an increase of 4.4% in local
currency sales (3.5% increase in
internally generated sales and 0.9% growth from acquisitions) partially offset by a
decrease of 2.2% related to
foreign currency exchange.
The 4.4% increase in local currency sales was attributable to an increase in dental
consumable merchandise sales of 2.4% (1.3% increase in internally generated
sales and 1.1% growth from
acquisitions) and an increase in dental equipment and service
sales of 12.0% (11.9% increase in internally
generated sales and 0.1% growth from acquisitions).
Our sales growth in dental merchandise was lower than our
sales growth in dental equipment during the first half of the three months
ended March 26, 2022.
As a result of an
increase in COVID-19 variants, primarily in Europe and to a lesser extent
in North America, our dental
merchandise growth was impacted by lower patient traffic, which began to increase as the
quarter progressed.
Dental equipment sales increased in both our North American and international
markets, which is primarily
attributable to increased demand and strong order backlog.
We estimate that our dental business recorded sales of
approximately $143 million of PPE and COVID-19 related products, an estimated
decrease of 15.3% versus the
prior year.
Excluding PPE and COVID-19 related products, the estimated
increase in internally generated local
currency dental sales was 6.3%.
The 18.3% increase in medical net sales includes an increase of 18.5%
in local currency sales (14.7% increase in
internally generated sales and 3.8% growth from acquisitions), partially offset by
a decrease of 0.2% related to
foreign currency exchange.
We estimate that our medical business recorded sales of approximately $344 million of
PPE, COVID-19 test kits, point-of-care diagnostics and other COVID-19
related products for the three months
ended March 26, 2022, an estimated increase of 15.7%
compared to the prior year.
Excluding sales of PPE,
COVID-19 test kits, point-of-care diagnostics and other COVID-19
related products, the estimated increase in
internally generated local currency medical sales was 14.5%.
The 23.4% increase in technology and value-added services net sales includes
an increase of 24.1%
in local
currency sales (11.1% increase in internally generated sales and 13.0% growth from acquisitions)
partially offset by
a decrease of 0.7% related to foreign currency exchange.
During the quarter ended March 26, 2022, the trend for
transactional software sales improved compared to the prior year, as more patients visited dental practices
worldwide, generating demand for our sales cycle management solutions,
and also from cloud-based solutions that
drive practice efficiency and patient engagement.
34
Gross Profit
Gross profit and gross margin percentages by segment and in total were as follows:
March 26,
Gross
March 27,
Gross
Increase
2022
Margin %
2021
Margin %
$
%
Health care distribution
$
857
28.6
%
$
789
28.4
%
$
68
8.6
%
Technology and value-added services
116
64.9
102
70.3
14
13.8
Total
$
973
30.6
$
891
30.5
$
82
9.2
As a result of different practices of categorizing costs associated with distribution networks
throughout our
industry, our gross margins may not necessarily be comparable to other distribution companies.
Additionally, we
realize substantially higher gross margin percentages in our technology and value-added services
segment than in
our health care distribution segment.
These higher gross margins result from being both the developer and seller of
software products and services, as well as certain financial services.
The software industry typically realizes higher
gross margins to recover investments in development.
Within our health care distribution segment, gross profit margins may vary from one period to the next.
Changes in
the mix of products sold as well as changes in our customer mix have been
the most significant drivers affecting
our gross profit margin.
For example, sales of our private label products achieve
gross profit margins that are
higher than average total gross profit margins of all products.
With respect to customer mix, sales to our large-
group customers are typically completed at lower gross margins due to the higher
volumes sold as opposed to the
gross margin on sales to office-based practitioners, who normally purchase lower volumes at
greater frequencies.
Health care distribution gross profit increased $68 million, or 8.6%, primarily
due to the increase in net sales
discussed above.
In addition, health care distribution gross profit margin benefitted from supplier rebates
during
the quarter due to increased purchase volumes.
The overall increase in our health care distribution gross profit
includes an increase of $37 million from internally generated sales, $19
million additional gross profit from
acquisitions, and a $12 million increase in the gross margin rates due to product mix and supplier
rebates.
Technology and value-added services gross profit increased $14 million, or 13.8%, due to a $10 million increase in
internally generated sales and $8 million additional gross profit from acquisitions,
partially offset by a decrease of
$4 million from gross margin rates due to product mix.
Technology and value-added services gross profit margin
decreased to 64.9% from 70.3% primarily due to lower gross margins of recently acquired
companies in the
business services sector.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3534
Three Months Ended April 1, 2023 Compared to Three Months Ended March 26, 2022
Net Sales
Net sales were as follows:
April 1,
% of
March 26,
% of
Increase / (Decrease)
2023
Total
2022
Total
$
%
Health care distribution
(1)
Dental
$
1,898
62.0
%
$
1,828
57.5
%
$
70
3.8
%
Medical
971
31.8
1,172
36.9
(201)
(17.2)
Total health care distribution
2,869
93.8
3,000
94.4
(131)
(4.4)
Technology and value-added services
(2)
191
6.2
179
5.6
12
6.8
Total
$
3,060
100.0
%
$
3,179
100.0
%
$
(119)
(3.8)
%
The components of our sales growth were as follows:
Total Local
Currency
Growth
Foreign
Exchange
Impact
Total Sales
Growth
Local Currency Growth
Local Internal
Growth
Acquisition
Growth
Health care distribution
(1)
Dental Merchandise
4.0
%
2.5
%
6.5
%
(2.4)
%
4.1
%
Dental Equipment
3.9
1.5
5.4
(2.6)
2.8
Total Dental
4.0
2.3
6.3
(2.5)
3.8
Medical
(17.1)
-
(17.1)
(0.1)
(17.2)
Total Health Care Distribution
(4.3)
1.4
(2.9)
(1.5)
(4.4)
Technology and value-added services
(2)
6.5
1.5
8.0
(1.2)
6.8
Total
(3.7)
%
1.4
%
(2.3)
%
(1.5)
%
(3.8)
%
Note: Percentages for Net Sales; Gross Profit; Selling, General and AdministrativeAdministrative; Other Expense, Net; and Income Taxes are based on
Selling, generalactual values and administrative expensesmay not recalculate due to rounding.
(1)
Consists of consumable products, small equipment, laboratory products, large equipment, equipment repair services, branded and
generic pharmaceuticals, vaccines, surgical products, dental specialty products (including implant, orthodontic and endodontic
products), diagnostic tests, infection-control products, PPE products and vitamins.
(2)
Consists of practice management software and other value-added products, which are distributed primarily to health care providers,
practice consultancy, education, revenue cycle management and financial services on a non-recourse basis, e-services, continuing
education services for practitioners, consulting and other services.
Global Sales
Global net sales for the three months ended April 1, 2023 decreased 3.8% based
upon the components presented in
the table above.
Sales of PPE products and COVID-19 test kits for the three
months ended April 1, 2023 were
approximately $201 million, a decrease of approximately 58.8% versus
the three months ended March 26, 2022.
Excluding PPE products and COVID-19 test kits, the increase in
internally generated local currency sales was
6.3%.
Dental
Dental net sales for the three months ended April 1, 2023 increased 3.8%
based upon the components presented in
the table above.
Our sales growth in local currency for dental merchandise was primarily
attributable to stable
patient traffic along with some price increases.
Our sales growth in local currency for dental equipment was
primarily attributable to growth in North America for traditional equipment,
partially offset by a decrease in digital
equipment.
International dental equipment sales growth in local currency
was supported by a strong equipment
backlog.
Sales of PPE products for the three months ended April 1, 2023
were approximately $92 million, a
decrease of approximately 35.8% versus the three months ended March 26,
2022.
Excluding PPE products, the
increase in internally generated local currency dental sales was 7.4%.
35
Medical
Medical net sales for the three months ended April 1, 2023 decreased
17.2% based upon the components presented
in the table above.
The local currency decrease in medical sales is primarily attributable
to lower sales of PPE
products and COVID-19 test kits, partially offset by strong medical equipment and
pharmaceutical sales.
Sales of
PPE products and COVID-19 test kits were approximately $109 million for
the three months ended April 1, 2023, a
decrease of approximately 68.4% compared to the three months ended March
26, 2022.
Excluding PPE products
and COVID-19 test kits, the increase in internally generated local currency medical
sales was 4.2%.
Technology and value-added services
Technology and value-added services net sales for the three months ended April 1, 2023 increased 6.8% based upon
the components presented in the table above.
During the three months ended April 1, 2023,
the trend for sales of
transactional software improved as we increased the number of cloud-based
users, generating demand for our
revenue cycle management solutions which drive practice efficiency and patient engagement.
The increase in sales
during the quarter ended April 1, 2023 was partially offset by the expiration, during
the third quarter of 2022, of a
modestly profitable government contract in one of our value-added services
businesses.
Gross Profit
Gross profit and gross margin percentages by segment and in total were as follows:
April 1,
Gross
March 26,
Gross
Increase / (Decrease)
2023
Margin %
2022
Margin %
$
%
Health care distribution
 
$
837
29.2
%
$
857
28.6
%
$
(20)
(2.3)
%
Technology and value-added services
129
67.4
116
64.9
13
11.1
Total
$
966
31.6
$
973
30.6
$
(7)
(0.7)
As a result of different practices of categorizing costs associated with distribution networks
throughout our
industry, our gross margins may not necessarily be comparable to other distribution companies.
Additionally, we
realize substantially higher gross margin percentages in our technology and value-added services
segment than in
our health care distribution segment.
These higher gross margins result from being both the developer and seller of
software products and services, as well as certain financial services.
The software industry typically realizes higher
gross margins to recover investments in research and development.
Within our health care distribution segment, gross profit margins may vary from one period to the next.
Changes in
the mix of products sold as well as changes in our customer mix have been
the most significant drivers affecting
our gross profit margin.
For example, sales of our corporate brand products achieve
gross profit margins that are
higher than average total gross profit margins of all products.
With respect to customer mix, sales to our large-
group customers are typically completed at lower gross margins due to the higher
volumes sold as opposed to the
gross margin on sales to office-based practitioners, who normally purchase lower volumes.
Health care distribution gross profit decreased primarily due to the decrease
in net sales discussed above, partially
offset by $11 million of gross profit from acquisitions and gross margin expansion, mainly as a result of price
increases and a favorable impact of sales mix of higher-margin products.
Technology and value-added services gross profit increased as a result of a higher gross profit from internally
generated sales and gross profit of $3 million from acquisitions, as well as an
increase in gross margin rates
primarily due to the impact of price increases.
36
Operating Expenses
Operating expenses (consisting of selling, general and administrative
expenses; depreciation and amortization; and
restructuring costs) by segment and in total were as follows:
% of
% of
April 1,
Respective
March 26,
Respective
March 27,
Respective
Increase
20222023
Net Sales
20212022
Net Sales
$
%
Health care distribution
 
$
692
24.1
%
$
646
21.5
%
$
59246
21.3
%
$
54
9.17.2
%
Technology and value-added services
 
99
51.6
83
46.4
6916
48.0
14
19.218.7
Total
 
$
791
25.8
$
729
22.9
$
66162
22.68.5
The net increase in operating expenses is attributable to the following:
Restructuring Costs
Operating Costs
Acquisitions
Total
Health care distribution
$
6826
10.2$
Selling, general18
$
2
$
46
Technology and administrative expenses (includingvalue-added services
4
4
8
16
Total
$
30
$
22
$
10
$
62
The restructuring costs are primarily related to severance and employee-related
 
in the three months ended March 27,costs, accelerated amortization of
2021) increased $68 million, or 10.2%.
The $54 million increase in selling, generalright-of-use lease assets and administrative expenses within
our health care distribution segment
was attributable to an increase of $36 million of operating costsfixed assets, and an increase
of $21 million of additional costs
from acquired companies, partially offset by a decrease of $3 million in restructuringother lease exit costs.
 
The $14 million
increase in selling, general and administrative expenses within our technology
and value-added services segment
was attributable to an increase of $7 million of operating costs and an
increase of $7 million of additional costsincludes
from acquired companies.
As a component of total selling, general and administrative expenses,
selling expenses increased $57 million, or
14.8% to $443 million primarily due to an increase in payroll and payroll
related costs and travel and convention
expenses.
As a percentage of net sales, selling expenses increased to 13.9%
from 13.2%.
As a component of total selling, general and administrative expenses, general
and administrative expenses
increased $11 million, or 3.7% to $287 million primarily due to an increaseincreases in payroll and payroll related
costs, and
travel and convention expenses.expenses
 
As a percentageand acquisition costs in both of net sales, generalour
reportable segments.
While the U.S. economy has recently experienced inflationary
pressures and administrative expenses decreasedstrengthening of
the U.S. dollar, their impacts have not been material to our results of operations.
 
to
9.0% from 9.3%.
Other Expense, Net
Other expense, net was as follows:
April 1,
March 26,
March 27,
Variance
20222023
20212022
$
%
Interest income
 
$
23
$
2
$
-1
-58.3
%
Interest expense
 
(14)
(7)
(6)(7)
(97.8)
Other, net
(1)
(16.7)-
(1)
n/a
Other expense, net
 
$
(12)
$
(5)
$
(4)(7)
$
(1)
(25.0)(119.0)
Interest expenseincome increased $1 million primarily due to increased interest rates.
 
Interest expense increased primarily due to
increased borrowings and increased interest rates.
Income Taxes
For the three months ended March 26, 2022April 1, 2023 our effective tax rate was 24.0%23.8% compared
 
to 25.1%24.0% for the prior year
period.
The difference between our effective tax rates and the federal statutory tax rate for the three
months ended
March 26, 2022 primarily relates to state and foreign income taxes and
interest expense as well as share-based
compensation.
 
The difference between our effective tax rate and the federal statutory tax rate for the three monthsprimarily
ended March 27, 2021 was primarily duerelates to state and
foreign income
taxes and interest expense.expense as well as stock-based compensation.
3637
Liquidity and Capital Resources
Our principal capital requirements have included funding of acquisitions, purchases
 
of additional noncontrolling
interests, repayments of debt principal, the funding of working capital needs,
 
purchases of fixed assets and
repurchases of common stock (which had been temporarily suspended
in April 2020, but were resumed in early
March 2021).stock.
 
Working capital requirements generally result from increased sales, special
inventory forward buy-in
opportunities and payment terms for receivables
and payables.
 
Historically, sales have
tended to be stronger during
the second half of the year and special inventory
forward buy-in opportunities have
have been most prevalent just before
the end of the year, and have caused our working capital requirements
to be higher
from the end of the
third quarter
to the end of the first quarter of
the following year.
We finance our business primarily through cash generated from our operations, revolving credit facilities and debt
placements.
 
Please see
 
for further information.
 
Our ability to generate sufficient cash flows from
operations is dependent on the continued demand of our customers
 
for our products and services, and access to
products and services from our suppliers.
Our business requires a substantial investment in working capital, which
 
is susceptible to fluctuations during the
year as a result of inventory purchase patterns and seasonal demands.
 
Inventory purchase activity is a function of
sales activity, special inventory forward buy-in opportunities and our desired level of inventory.
 
We anticipate
future increases in our working capital requirements.
We finance our business to provide adequate funding for at least 12 months.
 
Funding requirements are based on
forecasted profitability and working capital needs, which, on occasion, may
 
change.
 
Consequently, we may change
our funding structure to reflect any new requirements.
We believe that our cash and cash equivalents, our ability to access private debt markets and public equity markets,
and our available funds under existing credit facilities provide us with
 
sufficient liquidity to meet our currently
foreseeable short-term and long-term capital needs.
Net cash provided by operating activities was $93$27 million for the
 
three months ended March 26, 2022,April 1, 2023, compared to
net cash provided by operating activities of $63$93 million for the comparable
prior year period.year.
 
The net change of
$30 $66 million was
primarily attributabledue to higher neta decrease in operating income and decreasedan unfavorable change in
 
working capital, specifically a decrease
in inventory
levelsnet of PPE and COVID-19 related products, and reduced levels
of prepaid inventory and lower
outstanding vendor rebates.
These working capital decreases were partially offset by an increase in accounts
receivable balances resulting from increased sales.acquisitions.
Net cash used in investing activities was $27$39 million for the three months
 
months ended March 26, 2022,April 1, 2023, compared to $223$27
million for the comparable prior year period.year.
 
The net change of $196$12 million was primarily attributable to increased payments
for
decreased payments for equity investments and business acquisitions.purchases of fixed assets.
Net cash used inprovided by financing activities was $62$21 million for the three
 
three months ended March 26, 2022,April 1, 2023, compared to net
net cash used in financing activities of $120$62 million for the comparable
prior year period.year.
 
The net change of $58
$83 million was primarily
due to decreasedincreased net borrowings from debt, partially offset by increased repurchases
of common stock.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3738
The following table summarizes selected measures of liquidity and capital
 
resources:
March 26,April 1,
December 25,31,
2023
2022
2021
Cash and cash equivalents
 
$
126
$
118117
Working
 
capital
 
(1)
1,6861,780
1,5371,764
Debt:
Bank credit lines
 
$
90236
$
51103
Current maturities of long-term debt
 
355
116
Long-term debt
 
7731,021
8111,040
Total debt
 
$
8661,312
$
8731,149
Leases:
Current operating lease liabilities
$
7673
$
7673
Non-current operating lease liabilities
277274
268275
(1)
 
Includes $77$555 million and $138$327 million of certain accounts receivable which serve as security for U.S. trade accounts receivable
securitization at March 26, 2022April 1, 2023 and December 25, 2021,31, 2022, respectively.
Our cash and cash equivalents consist of bank balances and investments
 
in money market funds representing
overnight investments with a high degree of liquidity.
Accounts receivable days sales outstanding and inventory turns
Our accounts receivable days sales outstanding from operations decreased
 
increased to 4243.4 days as of April 1, 2023 from
41.6 days as of March 26, 2022 from 43
days as of March 27, 2021.2022.
 
During the three months ended March 26, 2022,April 1, 2023, we wrote
off approximately $3 million
million of fully reserved accounts receivable against our trade receivable
reserve.
 
Our inventory turns from operations
operations decreased to 4.3 as of April 1, 2023 from 4.7 as of March 26, 2022 from 5.2 as of March 27, 2021.2022.
 
Our working capital accounts may be
be impacted by current and future economic conditions.
Leases
We have operating and finance leases for corporate offices, office space, distribution and other facilities, vehicles,
and certain equipment.
 
Our leases have remaining terms of less than one year to
 
approximately 1918 years, some of
which may include options to extend the leases for up to 1015 years.
 
As of March 26, 2022,April 1, 2023, our right-of-use assets
related to operating leases were $331$280 million and our current and non-current
 
operating lease liabilities were $76$73
million and $277$274 million, respectively.
Stock Repurchases
On MarchFebruary 8, 2021, we announced2023, our Board of Directors authorized the reinstatement repurchase
of up to an additional $400 million in shares
of our share repurchase
program.common stock.
From March 3, 2003 through March 26, 2022,April 1, 2023, we repurchased $4.0$4.6 billion,
 
or 81,068,99388,404,588 shares, under our common
common stock repurchase programs, with $200$415 million available as of MarchApril 1, 2023
 
26, 2022 for future common stock share
share repurchases.
During the fiscal quarter ended March 26, 2022,
we did not repurchase any shares of our common stock because
we
had a 10b5-1 plan that did not result in any shares being repurchased during
the quarter.
We intend to put in place
an additional plan effective May 4, 2022.
3839
Critical Accounting Policies and Estimates
There have been no material changes in our critical accounting policies and
 
estimates from those disclosed in Item
7 of our Annual Report on Form 10-K for the year ended December 25, 2021,31, 2022,
 
except accounting policies adopted
as of December 26, 2021,January 1, 2023, which are discussed in
 
of the Notes to the Condensed Consolidated Financial
Statements included
under Item 1.
Accounting Standards Update
For a discussion of accounting standards updates that have been adopted
 
or will be adopted, see
 
and Recently Issued Accounting Standards of the Notes
to the Condensed Consolidated Financial Statements included under Item 1.
ITEM 3.
 
QUANTITATIVE
 
AND QUALITATIVE
 
DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our exposure to market risk
 
from that disclosed in Item 7A of our Annual
Report on Form 10-K for the year ended December 25, 2021.
3931, 2022.
ITEM 4.
 
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of management, including
 
our principal executive officer and
principal financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this quarterly report
 
as such term is defined in Rules 13a-15(e)
and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as
 
amended (the “Exchange Act”).
 
Based
on this evaluation, our management, including our principal executive
officer and principal
financial officer,
concluded that our disclosure controls and procedures were effective as of MarchApril 1,
 
26, 2022,2023, to ensure that all material
material information required to be disclosed by us in reports that we file or submit
 
or submit under the Exchange Act is accumulated
accumulated and communicated to them as appropriate to allow timely decisions
 
decisions regarding required disclosure and
that all such
information is recorded, processed, summarized and reported within the
 
within the time periods specified in the
SEC’s rules
and forms.
Changes in Internal Control over Financial Reporting
The combination of continued acquisition integrations and systemsystems implementation
 
implementationactivity undertaken during the quarter
quarter ended April 1, 2023 and carried over from prior quarters when considered
in the aggregate, representsdoes not
represent a material change in our internal
control over financial reporting.
During the three months ended March 26, 2022, post-acquisition integration
related activities continued for our
dental and medical businesses acquired during prior quarters.
These acquisitions, the majority of which utilize
separate information and financial accounting systems, have been
included in our consolidated financial statements
since their respective dates of acquisition.
In addition, during the quarter ended March 26, 2022, we completed the
systems implementation activities to
upgrade the warehouse management system for our Australian dental
business.
All continued acquisition integrations and systems implementation involve
necessary and appropriate change-
management controls that are considered in our quarterly assessment of
the design and operating effectiveness of
our internal control over financial reporting.
Limitations of the Effectiveness of Internal Control
A control system, no matter how well conceived and operated, can provide only
 
only reasonable, not absolute, assurance
that the objectives of the internal control system are met.
 
Because of the inherent limitations of any internal control
system, no evaluation of controls can provide absolute assurance that
all control
issues, if any, within a company
have been detected.
40
PART
 
II.
 
OTHER INFORMATION
 
ITEM 1.
 
LEGAL PROCEEDINGS
 
For a discussion of Legal Proceedings, see
 
of the Notes to the Condensed Consolidated
Financial Statements included under Item 1.
ITEM 1A. RISK FACTORS
 
There have been no material changes from the risk factors disclosed in
 
Part 1, Item 1A, of our Annual Report on
Form 10-K for the year ended December 25, 2021.31, 2022.
ITEM 2.
 
UNREGISTERED SALES OF EQUITY SECURITIES
 
AND USE OF PROCEEDS
Purchases of equity securities by the issuer
Our share repurchase program, announced on March 3, 2003, originally
, originally allowed us to repurchase up to two million
shares pre-stock splits (eight million shares post-stock splits) of our common
 
stock, which represented
approximately 2.3% of the shares outstanding at the commencement of
 
the program.
 
Subsequent additional
increases totaling $4.1 $4.9
billion, authorized by our Board of Directors,
to the repurchase program
provide for a total
of $4.2$5.0 billion (including $400 million authorized on February 8, 2023) of shares
of our common stock to be
repurchased under this
program.
As of March 26, 2022,April 1, 2023, we had repurchased approximately $4.0$4.6 billion of
 
common stock (81,068,993(88,404,588 shares) under
these initiatives, with $200$415 million available for future common stock
 
share repurchases.
During the fiscal quarter ended March 26, 2022, we did not repurchase
any sharesThe following table summarizes repurchases of our common stock because we
had a 10b5-1 plan that did not result in any shares being repurchased during
 
under our stock repurchase program during the quarter.
fiscal quarter ended April 1, 2023.
Total Number
Maximum Number
Total
of Shares
of Shares
Number
Average
Purchased as Part
that May Yet
of Shares
Price Paid
of Our Publicly
Be Purchased Under
Fiscal Month
Purchased (1)
Per Share
Announced Program
Our Program (2)
1/1/2023 through 2/4/2023
460,536
$
81.74
460,536
5,502,001
2/5/2023 through 3/4/2023
457,763
84.11
457,763
5,562,090
3/5/2023 through 4/1/2023
305,620
78.03
305,620
5,089,528
1,223,919
1,223,919
(1)
 
We intend to putAll repurchases were executed in placethe open market under our existing publicly announced authorized program.
an additional plan effective May 4, 2022.(2)
The maximum number of shares that couldmay 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.
 
The maximum number ofThis table excludes shares that could bewithheld from employees to satisfy minimum tax withholding
repurchased as of January 29, 2022, February 26, 2022, and March
26, 2022 were 2,642,010, 2,290,428 and
2,276,610, respectively.
41
ITEM 5.
OTHER INFORMATION
On May 2, 2022, the Compensation Committee of the Board of Directors
(the “Compensation Committee”)
approved the adoption of the Henry Schein, Inc. Executive Change in Control
Plan (the “CIC Plan”). The CIC Plan
contains the following material terms and conditions (terms capitalized but
not defined in the below description
have the definitions set forth in the CIC Plan):
•
Eligibility and Participation.
Members of our Executive Management Committee (“EMC”) and
other
employees of the Company or its subsidiaries who are specifically designated
by the “Administrator” are
eligible to participate in the CIC Plan, in each case,
subject to such person’s execution of a “Participation
Agreement” provided by the Company (in the form attached as Appendix
A to the CIC Plan), and provided
that such person is a member of a select group of management or highly
compensated employees.
•
Benefits Under the CIC Plan.
In the event that a participant in the Plan is terminated without “Cause”, or
resignsrequirements for “Good Reason”, in each case, during the period starting
90 days prior to a “Change in Control”
(or, if earlier, the date of the first public announcement of a pending “Change in Control”) and ending two
years following a Change in Control (such termination of employment,
a “Termination”), then subject to
execution and non-revocation of a release of claims, the participant will be
entitled to receive:
●
base salary through the Termination date;
●
a pro-rated annual bonus based on actual performance for the year
in which the Termination
occurs;
●
an amount equal to the product of (A) the sum of the participant’s base salary and target annual
bonus amount, multiplied by (B) the “Severance Multiple”;
●
immediate vesting of the participant’s outstanding stock options (to the maximum extent
permitted by the applicable stock option plan), restricted stock/units, deferred
stock awards and
non-qualified retirement benefits;
●
settlement of the participant’s deferred compensation arrangements in accordance with the
applicable plan or election form; and
●
COBRA continuation health coverage subsidized by the Company (with
the participant paying the
applicable active employee rate) for up to the applicable severance period
(not to exceed 18
months).
Under the Plan, the Compensation Committee has the sole discretion
to set and/or increase a participant’s
Severance Multiple under the Plan, but in no event to a value greater
than 3.0. The Compensation Committee has
set the Severance Multiple for each participant (other than a participant who
serves as our Chief Executive Officer)
who is an “executive officer” (as determined under Securities and Exchange Commission
rules) to 2.0, and has set
the Severance Multiple for all other participants to 1.0.
•
Restrictive Covenants.
The CIC Plan contains perpetual confidentiality and non-disparagement
provisions,
and prohibits solicitation of Company employees for 24 months following the
participant’s termination of
employment for any reason.
•
Amendment and Termination.
The CIC Plan cannot be terminated or amended in any way
that materially
and adversely affects the right of a participant without such participant’s consent. Additionally, the CIC
Plan cannot be amended or terminated in any way during the time period
starting 90 days prior to a Change
in Control (or the date the Company enters into a definitive agreement to
effect a Change in Control) andequity-based transactions.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
42
ending on the later of (i) two years after a Change in Control or (ii) the date
that all payments and benefits
under the Plan have been paid.
The foregoing summary of the CIC Plan does not purport to be complete
and is subject to, and qualified in its
entirety by, the full text of the CIC Plan, which is attached as Exhibit 10.3 and incorporated herein by reference.41
ITEM 6.
 
EXHIBITS
101.INS
Inline XBRL Instance Document - the instance document does not appear
 
in the
Interactive Data File because its XBRL tags are embedded within the
 
Inline
XBRL document+
101.SCH
Inline XBRL Taxonomy Extension Schema Document+
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document+
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document+
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document+
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document+
104
The cover page of Henry Schein, Inc.’s Quarterly Report on Form 10-Q for the
quarter ended March 26, 2022,April 1, 2023, formatted in Inline XBRL (included within
Exhibit
Exhibit 101 attachments).+
+ Filed or furnished herewith.
** Indicates management contract or compensatory plan or agreement.
 
4342
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
 
Registrant has duly caused this Report to
be signed on its behalf by the undersigned thereunto duly authorized.
Henry Schein, Inc.
(Registrant)
By: /s/ Ronald N. South
Ronald N. South
Senior Vice President and
Chief Financial Officer
(Authorized Signatory and Principal Financial
and Accounting Officer)
Dated: May 3, 20229, 2023