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,June 25, 2022
or
☐
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
 
ACT
 
OF 1934
For the transition period from ____________ to ____________
Commission File Number:
 
0-27078
HENRY SCHEIN, INC.
(Exact name of registrant as specified in its charter)
Delaware
11-3136595
(State or other jurisdiction of
(I.R.S. Employer Identification No.)
incorporation or organization)
135 Duryea Road
Melville
,
New York
(Address of principal executive offices)
11747
(Zip Code)
(
631
)
843-5500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $.01 per share
HSIC
The Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required
 
to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
 
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
 
past 90 days.
Yes
☒
 
No
 
☐
Indicate by
 
check mark
 
whether the registrant
 
has submitted
 
electronically every Interactive
 
Data File
 
required to
 
be submitted
pursuant
 
to
 
Rule
 
405
 
of
 
Regulation
 
S-T
 
during
 
the
 
preceding
 
12
 
months
 
(or
 
for
 
such
 
shorter
 
period
 
that
 
the
 
registrant
 
was
required to submit such files).
Yes
☒
 
No
 
☐
Indicate by
 
check mark
 
whether the
 
registrant is
 
a large
 
accelerated filer,
 
an accelerated
 
filer,
 
a non-accelerated
 
filer,
 
a smaller
reporting
 
company,
 
or
 
an
 
emerging
 
growth
 
company.
 
See
 
the
 
definitions
 
of
 
“large
 
accelerated
 
filer,”
 
“accelerated
 
filer,”
“smaller reporting company,” and “emerging growth company”
 
in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
 
☐
 
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period
 
for
complying with any new or revised financial accounting standards provided
 
pursuant to Section 13(a) of the Exchange Act.
 
☐
Indicate by check mark whether the registrant is a shell company (as defined
 
in Rule 12b-2 of the Exchange Act).
Yes
☐
 
No
☒
As of AprilJuly 25, 2022,
there were
138,050,781136,114,744
 
shares of the registrant’s common stock outstanding.
 
HENRY SCHEIN, INC.
INDEX
Page
3
4
5
6
7
78
89
89
910
1011
1112
1213
1415
1617
1819
1920
2021
2324
2324
2426
2526
2527
2627
2728
3843
3943
4044
4044
4044
4144
4245
4346
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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,June 25,
December 25,
2022
2021
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents
 
$
126108
$
118
Accounts receivable, net of reserves of $
7063
 
and $
67
1,4441,409
1,452
Inventories, net
1,8711,823
1,861
Prepaid expenses and other
 
389449
413
Total current assets
 
3,8303,789
3,844
Property and equipment, net
 
358356
366
Operating lease right-of-use assets
331327
325
Goodwill
 
2,8572,833
2,854
Other intangibles, net
 
644603
668
Investments and other
427416
424
Total assets
 
$
8,4478,324
$
8,481
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
 
$
914901
$
1,054
Bank credit lines
 
9085
51
Current maturities of long-term debt
 
34
11
Operating lease liabilities
7674
76
Accrued expenses:
Payroll and related
 
326328
385
Taxes
 
174124
137
Other
 
561560
593
Total current liabilities
 
2,1442,076
2,307
Long-term debt
 
773769
811
Deferred income taxes
 
4033
42
Operating lease liabilities
277276
268
Other liabilities
 
376357
377
Total liabilities
 
3,6103,511
3,805
Redeemable noncontrolling interests
 
613586
613
Commitments and contingencies
 
(nil)
(nil)
Stockholders' equity:
Preferred stock, $
0.01
 
par value,
1,000,000
 
shares authorized,
NaN
 
outstanding
0
0
Common stock, $
0.01
 
par value,
480,000,000
 
shares authorized,
137,708,809136,439,560
 
outstanding on March 26,June 25, 2022 and
137,145,558
 
outstanding on December 25, 2021
1
1
Additional paid-in capital
0
0
Retained earnings
 
3,7593,834
3,595
Accumulated other comprehensive loss
 
(168)(241)
(171)
Total Henry Schein, Inc. stockholders' equity
3,5923,594
3,425
Noncontrolling interests
632633
638
Total stockholders' equity
 
4,2244,227
4,063
Total liabilities, redeemable noncontrolling
 
interests and stockholders' equity
$
8,4478,324
$
8,481
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes.
4
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENTS
 
OF INCOME
(unaudited, in millions, except share and per share data)
Three Months Ended
MarchSix Months Ended
June 25,
June 26,
March 27,June 25,
June 26,
2022
2021
2022
2021
Net sales
 
$
3,1793,030
$
2,9252,967
$
6,209
$
5,892
Cost of sales
 
2,2062,085
2,0342,076
4,291
4,110
Gross profit
 
973945
891
1,918
1,782
Operating expenses:
Selling, general and administrative
 
682680
614635
1,362
1,249
Depreciation and amortization
4745
4445
92
89
Restructuring costs
0
31
0
4
Operating income
244220
230210
464
440
Other income (expense):
Interest income
 
23
21
5
3
Interest expense
 
(9)
(7)
(6)(16)
(13)
Other, net
0
1
0
1
Income before taxes, equity in earnings of affiliates
and noncontrolling interests
239214
226205
453
431
Income taxes
(57)(52)
(57)(47)
(109)
(104)
Equity in earnings of affiliates
 
45
6
9
12
Net income
186167
175164
353
339
Less: Net income attributable to noncontrolling interests
(5)(7)
(9)(8)
(12)
(17)
Net income attributable to Henry Schein, Inc.
$
181160
$
166156
$
341
$
322
Earnings per share attributable to Henry Schein, Inc.:
Basic
 
$
1.311.17
$
1.171.11
$
2.49
$
2.28
Diluted
 
$
1.301.16
$
1.161.10
$
2.46
$
2.26
Weighted-average common
 
shares outstanding:
Basic
 
137,296,581137,350,488
142,298,387140,358,428
137,323,076
141,316,258
Diluted
 
139,237,472138,869,064
143,397,724141,656,883
139,055,205
142,537,906
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes.
5
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENTS
 
OF COMPREHENSIVE INCOME
(unaudited, in millions)
Three Months Ended
MarchSix Months Ended
June 25,
June 26,
March 27,June 25,
June 26,
2022
2021
2022
2021
Net income
$
186167
$
175164
$
353
$
339
Other comprehensive income (loss), net of tax:
Foreign currency translation gain (loss)
3(90)
(38)38
(87)
0
Unrealized gain (loss) from foreign currency hedging
activities
 
18
3(2)
9
1
Pension adjustment gain
0
0
0
1
Other comprehensive income (loss), net of tax
 
4(82)
(34)36
(78)
2
Comprehensive income
 
19085
141200
275
341
Comprehensive income attributable to noncontrolling
interests:
 
Net income
(5)(7)
(9)(8)
(12)
(17)
Foreign currency translation (gain) loss
(1)9
6(7)
8
(1)
Comprehensive income(income) loss attributable to noncontrolling
interests
 
(6)2
(3)(15)
(4)
(18)
Comprehensive income attributable to Henry Schein, Inc.
 
$
18487
$
138185
$
271
$
323
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
��
See accompanying notes.
6
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENT
OF CHANGES IN
STOCKHOLDERS’ EQUITY
(unaudited, in millions, except share and per share data)
Accumulated
Common Stock
Additional
Other
Total
$0.01 Par Value
Paid-in
Retained
Comprehensive
Noncontrolling
Stockholders'
Shares
Amount
Capital
Earnings
Income / (Loss)
Interests
Equity
Balance, March 26, 2022
137,708,809
$
1
$
0
$
3,759
$
(168)
$
632
$
4,224
Net income (excluding $
5
attributable to Redeemable
noncontrolling interests)
-
0
0
160
0
2
162
Foreign currency translation loss (excluding loss of $
8
attributable to Redeemable noncontrolling interests)
-
0
0
0
(81)
(1)
(82)
Unrealized gain from foreign currency hedging activities,
net of tax of $
2
-
0
0
0
8
0
8
Change in fair value of redeemable securities
-
0
10
0
0
0
10
Repurchase and retirement of common stock
(1,345,397)
0
(16)
(94)
0
0
(110)
Stock-based compensation expense
78,738
0
15
0
0
0
15
Stock issued upon exercise of stock options
3,594
0
0
0
0
0
0
Shares withheld for payroll taxes
(6,016)
0
(1)
0
0
0
(1)
Settlement of stock-based compensation awards
(168)
0
1
0
0
0
1
Transfer of charges in excess of
capital
-
0
(9)
9
0
0
0
Balance, June 25, 2022
136,439,560
$
1
$
0
$
3,834
$
(241)
$
633
$
4,227
Accumulated
Common Stock
Additional
Other
Total
$0.01 Par Value
Paid-in
Retained
Comprehensive
Noncontrolling
Stockholders'
Shares
Amount
Capital
Earnings
Income / (Loss)
Interests
Equity
Balance, March 27, 2021
141,310,113
$
1
$
0
$
3,493
$
(136)
$
639
$
3,997
Net income (excluding $
7
attributable to Redeemable
noncontrolling interests)
-
0
0
156
0
1
157
Foreign currency translation gain (excluding gain of $
7
attributable to Redeemable noncontrolling interests)
-
0
0
0
31
0
31
Unrealized loss from foreign currency hedging activities,
net of tax of $
0
-
0
0
0
(2)
0
(2)
Change in fair value of redeemable securities
-
0
(87)
0
0
0
(87)
Initial noncontrolling interests and adjustments related to
business acquisitions
-
0
0
0
0
6
6
Repurchase and retirement of common stock
(1,542,315)
0
(15)
(97)
0
0
(112)
Stock-based compensation expense
-
0
17
0
0
0
17
Stock issued upon exercise of stock options
17,916
0
0
0
0
0
0
Shares withheld for payroll taxes
(4,873)
0
0
0
0
0
0
Settlement of stock-based compensation awards
-
0
(1)
0
0
0
(1)
Transfer of charges in excess of
capital
-
0
86
(86)
0
0
0
Balance, June 26, 2021
139,780,841
$
1
$
0
$
3,466
$
(107)
$
646
$
4,006
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes.
67
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENT
 
OF CHANGES IN
 
STOCKHOLDERS’STOCKHOLDERS' EQUITY
(unaudited, in millions, except share and per share data)
Accumulated
Common Stock
Additional
Other
Total
$0.01.01 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 $
49
 
attributable to Redeemable
noncontrolling interests)
-
0
0
181341
0
13
182344
Foreign currency translation gainloss (excluding gainloss of $
17
attributable to Redeemable noncontrolling interests)
-
0
0
0
2(79)
0(1)
2(80)
Unrealized gain from foreign currency hedging activities,
net of tax of $
13
-
0
0
0
19
0
19
Purchase of noncontrolling interests
-
0
0
0
0
(7)
(7)
Change in fair value of redeemable securities
-
0
(3)7
0
0
0
(3)7
Repurchase and retirement of common stock
(1,345,397)
0
(16)
(94)
0
0
(110)
Stock-based compensation expense
876,161954,899
0
1227
0
0
0
1227
Stock issued upon exercise of stock options
26,23329,827
0
2
0
0
0
2
Shares withheld for payroll taxes
(336,331)(342,347)
0
(28)(29)
0
0
0
(28)(29)
Settlement of stock-based compensation awards
(2,812)(2,980)
0
1
0
0
0
0
0
01
Transfer of charges in excess of
 
capital
-
0
178
(17)(8)
0
0
0
Balance, March 26,June 25, 2022
137,708,809136,439,560
$
1
$
0
$
3,7593,834
$
(168)(241)
$
632633
$
4,2244,227
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 $
714
 
attributable to Redeemable
noncontrolling interests)
-
0
0
166322
0
23
168325
Foreign currency translation loss (excluding lossgain of $
61
attributable to Redeemable noncontrolling interests)
-
0
0
0
(32)(1)
0
(32)(1)
Unrealized gain from foreign currency hedging activities,
net of tax of $
1
-
0
0
0
31
0
31
Pension adjustment gain, net of tax of $
0
-
0
0
0
1
0
1
Change in fair value of redeemable securities
-
0
(46)(133)
0
0
0
(46)(133)
Initial noncontrolling interests and adjustments related
to
business acquisitions
-
0
0
0
0
17
17
Repurchase and retirement of common stock
(1,325,242)(2,867,557)
0
(12)(27)
(77)(174)
0
0
(89)(201)
Stock-based compensation expense
281,645299,561
0
1330
0
0
0
13
Settlement of stock-based compensation awards
-
0
1
0
0
0
130
Shares withheld for payroll taxes
(108,861)(113,734)
0
(7)
0
0
0
(7)
Transfer of charges in excess of
 
capital
-
0
51137
(51)(137)
0
0
0
Balance, March 27,June 26, 2021
141,310,113139,780,841
$
1
$
0
$
3,4933,466
$
(136)(107)
$
639646
$
3,9974,006
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes.
78
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENTS
 
OF CASH FLOWS
(unaudited, in millions)
ThreeSix Months Ended
MarchJune 25,
June 26,
March 27,
2022
2021
Cash flows from operating activities:
Net income
 
$
186353
$
175339
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
 
55108
4999
Stock-based compensation expense
1227
1330
Provision for (benefit from)Benefit from losses on trade and other accounts receivable
 
10
(3)(4)
Provision for (benefit from) deferred income taxes
(3)(15)
116
Equity in earnings of affiliates
(4)(9)
(6)(12)
Distributions from equity affiliates
 
410
511
Changes in unrecognized tax benefits
 
4(1)
3(6)
Other
 
(7)(13)
03
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
 
1621
119102
Inventories
 
(9)4
(78)(124)
Other current assets
 
26(37)
(45)(86)
Accounts payable and accrued expenses
 
(188)(198)
(180)(136)
Net cash provided by operating activities
93250
63222
Cash flows from investing activities:
Purchases of fixed assets
 
(19)(43)
(14)(32)
Payments related to equity investments and business
acquisitions, net of cash acquired
 
(5)(7)
(204)(296)
Proceeds from (payments for) loan to affiliate
46
0(2)
Other
 
(7)(15)
(5)(11)
Net cash used in investing activities
 
(27)(59)
(223)(341)
Cash flows from financing activities:
Net change in bank borrowings
 
30
(5)
Proceeds from issuance of long-term debt
0
200
Principal payments for long-term debt
 
(53)(57)
(18)(120)
Proceeds from issuance of stock upon exercise of stock options
 
2
0
Payments for repurchases and retirement of common stock
 
0(110)
(89)(201)
Payments for taxes related to shares withheld for employee taxes
(26)(29)
(6)(8)
Distributions to noncontrolling shareholders
(5)(12)
(7)(4)
Acquisitions of noncontrolling interests in subsidiaries
 
(10)(19)
0(1)
Net cash used in financing activities
(62)(195)
(120)(139)
Effect of exchange rate changes on cash and cash equivalents
4(6)
34
Net change in cash and cash equivalents
8(10)
(277)(254)
Cash and cash equivalents, beginning of period
 
118
421
Cash and cash equivalents, end of period
 
$
126108
$
144167
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
89
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 period presentation.
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, 2021 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 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 threesix months ended March 26,June 25, 2022 are not necessarily indicative
 
indicative of the results to be expected for
for any other interim period or for the year ending December 31, 2022.
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,June 25, 2022 and December 25, 2021, certain trade accounts receivable
 
that can only be used to settle obligations
obligations of this VIE were $
7776
 
million and $
138
 
million, respectively, and the liabilities of this VIE where the
creditors have
recourse to us were $
60
 
million and $
105
 
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 to the significant uncertainty surrounding the future impact of
 
COVID-19, our judgments
regarding estimates and impairments could change in the future andfuture.
 
There is an ongoing risk that the COVID-19
pandemic may again have a material adverse effect on our business, results of operations
and cash flows and may
result in a material adverse effect on our
financial condition and liquidity.
 
However, the extent of the potential
impact cannot be reasonably estimated at this time
time.
.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
910
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 threesix months ended March 26,June 25, 2022,
2022, 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:2021.
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, the Financial Accounting Standards Board (“FASB”) issued 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,
 
hedging relationships and other
transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or
 
by another
reference rate expected to be discontinued because of reference rate reform.
 
The guidance was effective beginning
March 12, 2020 and can be applied prospectively through December 31,
 
2022.
 
In January 2021, the FASB issued
ASU 2021-01, Reference Rate Reform (Topic 848): Scope (“ASU 2021-01”).
 
ASU 2021-01 provides temporary
optional expedients and exceptions to certain guidance in U.S. GAAP to ease
 
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.
 
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. 2022-01, “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
)
1011
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 – Revenue from Contracts with Customers
Revenue is recognized in accordance with policies disclosed in Item 8 of our
 
Annual Report on Form 10-K for
the year ended December 25, 2021.
Disaggregation of Net Sales
The following table disaggregates our Net sales by reportable segment and geographic
 
area:
Three Months Ended
 
March 26,Six Months Ended
June 25, 2022
June 25, 2022
North
America
International
Global
Revenues:North
America
International
Global
Net Sales:
Health care distribution
Dental
 
$
1,1051,124
723$
1,828729
$
1,853
$
2,229
$
1,452
$
3,681
Medical
 
1,150977
2219
1,172996
2,127
41
2,168
Total health care distribution
2,2552,101
745748
3,0002,849
4,356
1,493
5,849
Technology
 
and value-added services
156158
23
179181
314
46
360
Total revenues
$
2,4112,259
$
768771
$
3,1793,030
$
4,670
$
1,539
$
6,209
Three Months Ended
 
March 27,Six Months Ended
June 26, 2021
June 26, 2021
North
America
International
Global
Revenues:North
America
International
Global
Net Sales:
Health care distribution
Dental
 
$
1,0451,129
744$
1,789783
$
1,912
$
2,174
$
1,527
$
3,701
Medical
 
963875
2827
991902
1,838
55
1,893
Total health care distribution
2,0082,004
772810
2,7802,814
4,012
1,582
5,594
Technology
 
and value-added services
124131
2122
145153
255
43
298
Total revenues
$
2,1322,135
$
793832
$
2,9252,967
$
4,267
$
1,625
$
5,892
At December 25, 2021, the current portion of contract liabilities of $
89
 
million was reported in Accrued expenses:
Other, and $
10
 
million related to non-current contract liabilities was reported
 
in Other liabilities.
 
During the threesix
months ended March 26,June 25, 2022, we recognized in revenuenet sales $
3956
 
million of the amounts that were previously deferred at
at December 25, 2021.
 
At March 26,June 25, 2022, the current and non-current portion of contract liabilities
 
liabilities were $
9187
million
and $
9
 
million, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
1112
Note 4
 
–
Segment Data
We conduct our business through
2
 
reportable segments: (i) health care distribution and (ii) technology
 
and
value-added services. These segments offer different products and services to the same customer
 
base. Our global
dental businesses serve office-based dental practitioners, dental laboratories, schools and
 
other institutions. Our
global medical businesses serve office-based medical practitioners, ambulatory
 
surgery centers, other alternate-care
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 and medical operating segments. This
segment distributes consumable products, dental specialty products,
 
small equipment, laboratory products, large
equipment, equipment repair services, branded and generic pharmaceuticals,
 
vaccines, surgical products, diagnostic
tests, infection-control products, personal protective equipment (“PPE”)
 
and vitamins.
Our global technology and value-added services reportable segment provides
 
software, technology and other value-
added services to health care practitioners. Our technology offerings include practice management
 
management software systems
for dental and medical practitioners. Our value-added practice solutions
 
include practice consultancy, education,
revenue cycle management and financial services on a non-recourse basis,
 
e-services, practice technology, network
and hardware services, as well as continuing education services for practitioners.
The following tables present information about our reportable and operating
segments:
Three Months Ended
MarchSix Months Ended
June 25,
June 26,
March 27,June 25,
June 26,
2022
2021
2022
2021
Net Sales:
Health care distribution
(1)
Dental
 
$
1,8281,853
$
1,7891,912
$
3,681
$
3,701
Medical
 
1,172996
991902
2,168
1,893
Total health care distribution
3,0002,849
2,7802,814
5,849
5,594
Technology
 
and value-added services
(2)181
179153
145360
298
Total
 
$
3,1793,030
$
2,925
2,967
(1)$
Consists of consumable products, small equipment, laboratory products, large equipment, equipment repair services, branded and6,209
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.5,892
Three Months Ended
MarchSix Months Ended
June 25,
June 26,
March 27,June 25,
June 26,
2022
2021
2022
2021
Operating Income:
Health care distribution
 
$
211189
$
197182
$
400
$
379
Technology
 
and value-added services
 
3331
3328
64
61
Total
$
244220
$
230210
$
464
$
440
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
1213
Note 5
 
–
Business Acquisitions
2022 Acquisitions
During the threesix months ended March 26,June 25, 2022,
we made an acquisition several acquisitions
within the technology and value-added
services segment.segments.
 
The impact of this acquisition these acquisitions
was not considered material to our
condensed consolidated
financial statements.
2021 Acquisitions
We completed several acquisitions during the threesix months ended March 27,June 26, 2021 which were immaterial to our financial
financial statements.
 
Our acquired ownership interest acquired rangesranged between approximately
6551
% to
100
%.
 
Acquisitions
within our
health care distribution segment included
 
companies that specialize in distribution of dental products, a provider
of
provider of home medical supplies, and product kitting and sterile packaging.
 
Within our technology and value-addedvalue-
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 acquisitions during the threesix months ended March 27,June 26, 2021.
 
While we use our best estimates and
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 condensed consolidated balance sheets.
Acquisition consideration:
Cash
$
212303
Deferred consideration
28
Redeemable noncontrolling interests
75129
Total consideration
$
289440
Identifiable assets acquired and liabilities assumed:
Current assets
87107
Intangible assets
151184
Other noncurrent assets
1934
Current liabilities
(32)(44)
Deferred income taxes
(9)(17)
Other noncurrent liabilities
(22)(37)
Total identifiable
 
net assets
194227
Goodwill
95213
Total net assets acquired
$
289440
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
1314
The following table summarizes the identifiable intangible assets acquired
 
during the quartersix months ended March 27, 2021June 26,
2021 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$
8124
5
-
12
Trademark / Tradename
33
5
-
7
Non-compete agreements
6
5
Product development
321
5
-
7
Total
$
151184
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
condensed consolidated statements of income.
 
For the threesix months ended March 26,June 25, 2022 and March 27,June 26, 2021, there were
no
were no material adjustments recorded in our condensed consolidated statements
of income
relating to changes in
estimated contingent
purchase price liabilities.
During the six months ended June 25, 2022 and June 26, 2021 we
incurred $
3
million and $
4
million, respectively,
in acquisition costs.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
1415
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
 
observable for the asset or liability,
either directly or indirectly.
 
Level 2 inputs include: quoted prices for similar assets or liabilities
 
in active markets;
quoted prices for identical or similar assets or liabilities in markets
that are
not active; inputs other than quoted
prices that are observable for the asset or liability; and inputs that are
 
derived principally from or corroborated by
observable market data by correlation or other means.
•
 
Level 3— Inputs that are unobservable for the asset or liability.
The following section describes the fair values of our financial instruments
 
and the methodologies that we used to
measure their fair values.
Investments and notes receivable
There are no quoted market prices available for investments in unconsolidated
 
affiliates and notes receivable;
however, we believe the carrying amounts are a reasonable estimate of fair value based on the interest rates
 
rates in the
applicable markets.
Debt
The fair value of our debt (including bank credit lines) is classified as
 
Level 3 within the fair value hierarchy, and
as of March 26,June 25, 2022 and December 25, 2021 was estimated at $
866858
 
million and $
873
 
million, respectively.
 
Factors
Factors that we considered when estimating the fair value of our debt included
 
included market conditions, such as interest
rates and
credit spreads.
Derivative contracts
Derivative contracts are valued using quoted market prices and significant
 
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
)
1516
Redeemable noncontrolling interests
The values for Redeemable noncontrolling interests are classified within
 
Level 3 of the fair value hierarchy and are
based on recent transactions and/or implied multiples of earnings.
 
See
for additional information.
The following table presents our assets and liabilities that are measured and
 
recognized at fair value on a recurring
basis classified under the appropriate level of the fair value hierarchy as of
 
March 26,June 25, 2022 and December 25,
2021:
March 26,June 25, 2022
Level 1
Level 2
Level 3
Total
Assets:
Derivative contracts designated as hedges
$
0
$
1123
$
0
$
1123
Derivative contracts undesignated
20
2
Total return
swaps
0
1
0
12
Total assets
 
$
0
$
1425
$
0
$
1425
Liabilities:
Derivative contracts designated as hedges
$
0
$
1
$
0
$
1
Derivative contracts undesignated
20
25
0
5
Total return
swaps
0
5
0
5
Total liabilities
 
$
0
$
311
$
0
$
311
Redeemable noncontrolling interests
 
$
0
$
0
$
613586
$
613586
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
 
$
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
)
1617
Note 7 – Debt
Bank Credit Lines
Bank credit lines consisted of the following:
March 26,June 25,
December 25,
2022
2021
Revolving credit agreement
$
0
$
0
Other short-term bank credit lines
9085
51
Total
 
$
9085
$
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
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
 
immediately after June 30, 2023.
 
We
do not expect the
discontinuation of LIBOR as a reference rate in our debt agreements
 
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
 
changes (including(including mergers),
dispositions and
certain restrictive agreements.
 
As of March 26,June 25, 2022 and December 25, 2021, we had
0
borrowings under this
revolving credit facility.
 
As of March 26,June 25, 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,June 25, 2022 and December 25, 2021, we had various other short-term
 
bank credit lines available, of which
which $
9085
 
million and $
51
 
million, respectively, were outstanding.
 
At March 26,June 25, 2022 and December 25, 2021, borrowings
borrowings under all of these credit lines had a weighted average interest rate
 
rate of
8.919.90
% and
10.44
%, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
1718
Long-term debt
Long-term debt consisted of the following:
March 26,June 25,
December 25,
2022
2021
Private placement facilities
 
$
699
$
706
U.S. trade accounts receivable securitization
60
105
Various
 
collateralized and uncollateralized loans payable with interest,
in varying installments through 2023 at interest rates
ranging from
00.00
% to
4.273.50
% at March 26,June 25, 2022 and
 
ranging from
2.62
% to
4.27
% at December 25, 2021
107
4
Finance lease obligations
7
7
Total
 
776773
822
Less current maturities
 
(3)(4)
(11)
Total long-term debt
 
$
773769
$
811
Private Placement Facilities
Our private placement facilities were amended on
October 20, 2021
 
to include
4
 
(previously
3
) insurance
companies, have a total facility amount of $
1.5
 
billion (previously $
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 lenders at a fixed rate based on an agreed upon spread over applicable
 
treasury notes at the time of
issuance.
 
The term of each possible issuance will be selected by us and
 
can range from
five
 
to
15 years
 
(with an
average life no longer than
12 years
).
 
The proceeds of any issuances under the facilities will be used for
 
general
corporate purposes, including working capital and capital expenditures,
 
to refinance existing indebtedness, and/or
to fund potential acquisitions.
 
The agreements provide, among other things, that we maintain
 
certain maximum
leverage ratios, and contain restrictions relating to subsidiary indebtedness,
 
liens, affiliate transactions, disposal of
assets and certain changes in ownership.
 
These facilities contain make-whole provisions in the event that we
 
pay
off the facilities prior to the applicable due dates.
The components of our private placement facility borrowings as
 
of March 26,June 25, 2022 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
)
1819
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 current facility, which
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
2
 
banks as agents and extend the expiration date to
October 18, 2024
.
 
As of March 26,June 25, 2022 and December
25, 2021, the borrowings outstanding under this securitization facility were
 
$
60
 
million and $
105
 
million,
respectively.
 
At March 26,June 25, 2022, the interest rate on borrowings under this facility
 
this facility was based on the asset-backed
commercial paper rate of
0.531.43
% plus
0.75
%, for a combined rate of
1.282.18
%.
 
At December 25, 2021, the interest rate
on borrowings under this facility was based on the asset-backed commercial
 
paper rate of
0.19
% plus
0.75
%, for a
combined rate of
0.94
%.
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.
Note 8 – Income Taxes
For the threesix months ended March 26,June 25, 2022 our effective tax rate was
24.023.9
% compared to
25.124.3
% for the prior year
period.
 
The difference between our effective tax ratesrate and the federal statutory tax rate for the six
 
the three months ended
March 26,June 25, 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
six months
ended March 27,June 26, 2021 was primarily duerelates to state and foreign income taxes,
 
taxesinterest expense and interest expense.tax charges and
credits associated with legal entity reorganizations.
The total amount of unrecognized tax benefits, which are included in “Other
 
“other liabilities” within our consolidatedcondensed
consolidated balance sheets, as of March 26,June 25, 2022 and December 25, 2021
was $
8783
 
million and $
84
 
million,
respectively of
which $
7369
 
million and $
69
 
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.
 
The tax years subject to examination by the
IRS include years 2017 and forward.
 
During the quarter ended December 25, 2021, we were notified
 
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 expenseexpense/(credit) was $
10
 
million for each of the threesix months ended March 26,June 25, 2022, and March$
(3)
 
27,million for
the six months ended June 26, 2021.
 
The total amount of accrued interest is included in “Other liabilities,”
 
liabilities,” and was
$
13
 
million as of March 26,
June 25, 2022 and $
12
 
million as of December 25, 2021.
 
NaN
 
penalties were accrued for the
periods presented.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
1920
Note 9 – Legal Proceedings
Henry Schein, Inc. has been named as a defendant in multiple lawsuits (currently
 
(currently less than one-hundred and seventy-fivefifty
(
175150
); 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),
whichdefendant).
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.)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:trial: 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; and the action filed
by DCH Health Care Authority, et al. in
Alabama state court, which is
currently scheduled for a jury trial on March 20, 2023.July 24, 2023;
 
Theand 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 the pending a jury trial in October 2024.
In June 2022, we settled
NaN
cases filed by
hospitals in West
Virginia, has indicated that it intends to set trials for all defendants in 2022.
 
However, asand settled with
1
additional hospital, for a total amount of this filing, the West
Virginia hospital three-hundred thousand
dollars.
The
NaN
cases against Henry Schein have not been set for trial.dismissed.
 
Of Henry Schein’s 2021 sales of
approximately $
12.4
 
billion,
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.
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,June 25, 2022, we had accrued our best estimate of potential losses
 
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 10 – 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, for our 2021 fiscal year, in
light of the COVID-19 pandemic, the Compensation Committee determined
 
it would be difficult for management
to set a meaningful three-year cumulative earnings per share target as the goal applicable
 
to performance-based
restricted stock unit awards as it had done in prior years.
 
Instead, the Compensation Committee set our equity-
based awards to employees for fiscal 2021 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.
 
Our non-employee
directors continued to receive equity-based wardsawards for fiscal 2021
solely in
the form of time-based RSUs.
 
DuringIn March
the three months ended March 26, 2022, the Compensation Committee reinstated performance-based
 
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
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
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 Incentive
 
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 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
 
and are
received by the recipient is based upon our performance as measured against
 
specified targets over a specified
period, as determined by the Compensation Committee.
 
Although there is no guarantee that performance targets
will be achieved, we estimate the fair value of performance-based RSUs
 
based on our closing stock price at time of
grant.
Each of the Plans provide for certain adjustments to the performance
measurement in connection with awards under
the Plans.
 
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, andthe
financial impact, either positive or negative, of the differences in projected earnings
 
generated by sales of COVID-
19 test kits (solely with respect to performance-based RSUs
granted in the 2022 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 the
 
and the
related compensation cost
recognized as an expense will be based on our
actual performance metrics
as defined
under the Plans.
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
(unaudited
)
22
Stock options are awards that allow the recipient to purchase shares of our
 
common stock at a fixed price following
vesting of the stock options.
 
Stock options are granted at an exercise price equal to our closing stock price
 
price on the
date of grant.
 
Stock options issued beginning in 2021 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 estimate the fair value of stock options using the Black-Scholes valuation model.
 
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’sour 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
 
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’sour
three-year
 
EPS goal under such equity awards and the contributions made by our
 
by theemployees
Company’s employees (including(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 Companyus 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 $
1215
 
million ($
912
 
million after-tax) and $
1327
 
million ($
1021
 
million after-tax) for the three and six months ended
June 25, 2022, respectively.
For the three and six months ended MarchJune 26, 2021, we recorded pre-tax share-based
2022compensation expense of $
17
million ($
13
million after-tax) and March 27, 2021,$
30
million ($
23
million after-tax), respectively.
Total unrecognized compensation cost related to unvested awards as of March 26,June 25, 2022 was $
134116
 
million, which is
expected to be recognized over a weighted-average period of approximately
2.62.4
 
years.
Our accompanying condensed consolidated statements of cash flows present
 
our stock-based compensation expense
as an adjustment to reconcile net income to net cash provided by operating
 
activities for all periods presented.
 
In
the accompanying condensed consolidated statements of cash flows, there were
0
 
benefits associated with tax
deductions in
excess of recognized compensation as a cash inflow from financing
 
financing activities for the threesix months
ended March 26,
June 25, 2022 and March 27,June 26, 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
 
27.2027.40
%
Risk-free interest rate
 
2.203.25
%
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
)
2223
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 stock option activity under the Plans
 
during the threesix months ended March 26,
June 25, 2022:
Stock Options
Weighted
Average
Weighted
 
Remaining
Average
 
Contractual
Aggregate
Exercise
Life in
 
 
Intrinsic
Shares
Price
Years
 
Value
Outstanding at beginning of period
 
767,717
$
63.24
 
Granted
 
396,874406,443
86.2786.16
 
Exercised
 
(26,233)(29,892)
62.71
 
Forfeited
 
(1,688)(9,656)
62.7171.72
 
Outstanding at end of period
 
1,136,6701,134,612
$
71.3071.39
 
9.39.1
 
$
1910
Options exercisable at end of period
 
220,065219,642
$
62.7162.92
 
Weighted
Weighted
Average
Average
Remaining
Aggregate
Number of
Exercise
Contractual
Intrinsic
Options
Price
Life (in years)
Value
Vested
 
or expected to vest
891,140894,356
$
73.6673.68
9.49.2
$
137
The following tables summarize the activity of our unvested RSUs for the six
 
the three months ended March 26,June 25, 2022:
Time-Based Restricted Stock Units
Weighted Average
 
Grant Date Fair
Intrinsic Value
Shares/Units
Value Per Share
Per Share
Outstanding at beginning of period
 
1,945,862
$
58.79
Granted
 
427,978455,169
86.4386.13
Vested
 
(489,549)(501,944)
54.5754.76
Forfeited
 
(7,374)(28,807)
61.1865.88
Outstanding at end of period
 
1,876,9171,870,280
$
66.3066.47
$
87.8577.29
Performance-Based Restricted Stock Units
Weighted Average
 
Grant Date Fair
Intrinsic Value
Shares/Units
Value Per Share
Per Share
Outstanding at beginning of period
 
674,753
$
59.63
Granted
 
460,896390,975
70.9375.70
Vested
 
(386,612)(392,001)
59.0859.24
Forfeited
 
(1,752)(7,724)
60.5666.18
Outstanding at end of period
 
747,285666,003
$
56.7762.39
$
87.8577.29
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
2324
Note 11 – 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 threesix months ended March 26,June 25, 2022 and the year ended December
 
25, 2021 are presented in the
following table:
 
March 26,June 25,
December 25,
2022
2021
Balance, beginning of period
 
$
613
$
328
Decrease in redeemable noncontrolling interests due to acquisitions of
noncontrolling interests in subsidiaries
(3)(11)
(60)
Increase in redeemable noncontrolling interests due to business
acquisitions
0
189
Net income attributable to redeemable noncontrolling interests
 
49
23
Dividends declared
 
(5)(11)
(21)
Effect of foreign currency translation gain (loss)loss attributable to
redeemable noncontrolling interests
 
1(7)
(6)
Change in fair value of redeemable securities
 
3(7)
160
Balance, end of period
 
$
613586
$
613
Note 12 – 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,June 25,
December 25,
2022
2021
Attributable to Redeemable noncontrolling interests:
Foreign currency translation adjustment
 
$
(30)(38)
$
(31)
Attributable to noncontrolling interests:
Foreign currency translation adjustment
$
(1)
$
0
Attributable to Henry Schein, Inc.:
Foreign currency translation adjustment
$
(153)(234)
$
(155)
Unrealized lossgain (loss) from foreign currency hedging activities
 
(1)7
(2)
Pension adjustment loss
 
(14)
(14)
Accumulated other comprehensive loss
 
$
(168)(241)
$
(171)
Total Accumulated
 
other comprehensive loss
 
$
(198)(280)
$
(202)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
2425
The following table summarizes the components of comprehensive income, net
 
of applicable taxes as follows:
Three Months Ended
MarchSix Months Ended
June 25,
June 26,
March 27,June 25,
June 26,
2022
2021
2022
2021
Net income
$
186167
$
175164
$
353
$
339
Foreign currency translation gain (loss)
3(90)
(38)38
(87)
0
Tax effect
 
0
0
0
0
Foreign currency translation gain (loss)
3(90)
(38)38
(87)
0
Unrealized gain (loss) from foreign currency hedging
activities
 
210
4(2)
12
2
Tax effect
 
(1)(2)
0
(3)
(1)
Unrealized gain (loss) from foreign currency hedging
activities
 
18
3(2)
9
1
Pension adjustment gain
0
0
0
1
Tax effect
 
0
0
0
0
Pension adjustment gain
0
0
0
1
Comprehensive income
 
$
19085
$
141200
$
275
$
341
The change in the unrealized gain (loss) from foreign currency hedging activities
during the three and six months
ended June 25, 2022 and June 26, 2021 was primarily attributable
to a net investment hedge that was entered into
during 2019.
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 (loss) during the threesix months ended March
 
26,June 25, 2022 and threesix months ended March 27,June 26,
2021 was primarily impacted by changes in foreign currency exchange rates
 
of the Euro, British Pound, Brazilian
Real, Australian Dollar and Canadian Dollar.
The following table summarizes our total comprehensive income, net of
 
applicable taxes, as follows:
Three Months Ended
MarchSix Months Ended
June 25,
June 26,
March 27,June 25,
June 26,
2022
2021
2022
2021
Comprehensive income attributable to
Henry Schein, Inc.
 
$
18487
$
138185
$
271
$
323
Comprehensive income attributable to
noncontrolling interests
 
1
1
2
3
Comprehensive income (loss) attributable to
Redeemable noncontrolling interests
 
5(3)
114
2
15
Comprehensive income
 
$
19085
$
141200
$
275
$
341
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
(unaudited
)
26
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 and six months ended March 27,June 26, 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 $
31
 
million and $
4
 
million,
respectively
.
respectively.
 
As of June 25, 2022 and December 25, 2021, the remaining
 
accrued balance for restructuring costs
was $
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)1
 
(unauditedmillion and $
)4
25
million, respectively.
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 to record restructuring charges in
2022 and 2023, however an estimate of the amount of these charges has not yet been
determined.
Any restructuring
charges are expected primarily to include severance pay and facility-related costs.
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
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 share follows:
Three Months Ended
MarchSix Months Ended
June 25,
June 26,
March 27,June 25,
June 26,
2022
2021
2022
2021
Basic
 
137,296,581137,350,488
142,298,387140,358,428
137,323,076
141,316,258
Effect of dilutive securities:
Stock options, restricted stock and restricted stock units
 
1,940,8911,518,576
1,099,3371,298,455
1,732,129
1,221,648
Diluted
 
139,237,472138,869,064
143,397,724141,656,883
139,055,205
142,537,906
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
MarchSix Months Ended
June 25,
June 26,
March 27,June 25,
June 26,
2022
2021
Interest2022
$2021
8Stock options
$423,786
8786,691
Income taxes250,226
21501,648
13Restricted stock units
51,453
2,621
226,203
1,653
Total anti-dilutive
securities excluded from EPS
computation
475,239
789,312
476,429
503,301
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
)
27
Note 15 – Supplemental Cash Flow Information
Cash paid for interest and income taxes was:
Six Months Ended
June 25,
June 26,
2022
2021
Interest
$
17
$
14
Income taxes
165
134
During the six months ended June 25, 2022 and June 26, 2021, we had a
$
12
million and $
2
million of non-cash net
unrealized gains 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 and
six months ended March 26,June 25, 2022, and March 27, 2021, we recorded $
8
 
million and $
816
 
million, respectively in connection with costs
related to this royalty agreement.
During the three and six months ended June 26, 2021, we recorded
$
8
million
and $
16
million, respectively, in connection with costs related to this royalty agreement.
 
As of March 26,June 25, 2022 and
December 25, 2021,
Henry
Schein One, LLC had a net (payable) receivable balance due
(to) from Internet Brands
of
$
1(6)
 
million and $
9
 
million, respectively,
comprised of amounts related to results of operations and the royalty
agreement.
During our normal course of business, we have interests in entities that we
account for under the equity accounting
method.
 
During the three and six months ended March 26,June 25, 2022, and March 27,we recorded
 
2021, we recorded net sales of $
16
 
million
and $
1632
million, respectively, to such entities.
During the three and six months ended June 26, 2021, we recorded net
sales
of $
18
million and $
33
 
million, respectively, to such entities.
 
During the three and six months ended March 26,June 25, 2022, and March 27,
2021,
we purchased $
5
 
million and $
10
million, respectively, from such entities.
During the three and six months ended
June 26, 2021, we purchased $
5
million and $
9
 
million, respectively, from such entities.
 
At March 26,June 25, 2022 and
December 25,
2021, in the aggregate we had in aggregate $
40
 
million and $
45
 
million, due from our equity affiliates, and $
9
million and $
9
million due to our equity affiliates, respectively.
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
6 months
to
10 years
.
As of
June 25, 2022, current and non-current liabilities associated with related
party operating leases were $
4
million and
$
17
million, respectively.
Related party leases represented
5.4
% and
6.1
% of the total current and non-current
operating lease liabilities.
2728
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
 
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),
 
(SEC), including our Annual Report on Form
10-K. Forward looking statements include the overall impact of the Novel
 
Coronavirus Disease 2019 (COVID-19)
on 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”)
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
 
mandates will adversely impact the
Companyus (by disrupting our
workforce and/or business), whether supply chain
disruptions will adversely
impact
our business, the impact of
restructuring programs as well as of any
future acquisitions, and more generally
current
expectations regarding
performance in current and future periods.
 
Forward looking statements also include the (i)
our ability of the Company to have
continued access to a variety of 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
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; financial
 
and tax risks associated with
acquisitions, dispositions and joint ventures; certain provisions in our governing
 
documents that may discourage
third-party acquisitions of us; effects of a highly competitive (including, without
 
limitation, competition from third-
party online commerce sites) and consolidating market; the repeal or judicial
 
judicial prohibition on implementation of the
Affordable Care Act; changes in the health care industry; risks from expansion of
 
customer purchasing power and
multi-tiered costing structures; increases in shipping costs for our products
 
or other service issues with our third-
party shippers; general global and domestic macro-economic and political conditions,
 
conditions, including inflation, deflation,
fluctuations in the value of the U.S. dollar as compared to foreign currencies,
and changes to other economic
indicators, international trade agreements,
potential trade barriers and
terrorism; failure to comply with existing and
future regulatory requirements; risks
associated with the EU Medical
Device Regulation; failure to comply with
laws and regulations relating to health
care fraud or other laws and regulations;
failure to comply with laws and
and regulations relating to the collection,
storage and processing of sensitive
personal information or standards in
electronic
health records or transmissions;
changes in tax legislation;
risks related to product liability, intellectual
property and other claims; litigation
risks; new or unanticipated litigation
developments and the status of litigation
litigation matters; risks associated with
customs policies or legislative import restrictions;
cyberattacks or other
privacy or
data security breaches; risks
associated with our global operations;
our dependence on our senior management,
employee hiring and retention,
and our relationships with customers,
suppliers and manufacturers;
and disruptions
in financial markets.
 
The order
in which these factors appear should not be construed
to indicate their relative
relative importance or priority.
2829
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.
 
Demand for dental
products and certain medical products throughout 2021
was driven
by sales of PPE, 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.
 
During the three months
months ended March 26,June 25, 2022, with the exception of COVID-19 test kits, we experienced
 
we continued to experience a decrease in the sales volume of PPE
PPE and COVID-19
related products.products and additionally we began to experience declining demand
 
for COVID-19 test kits.
We expect
continued volatility in sales of test kits for the remainder of the year.
During the three months ended March 26,June 25, 2022,
 
as a result of an increase in COVID-19 variants, primarily in
Europe and to a lesser extent in North America, we experienced lowera
modest decline in dental
patient traffic which beganwe believe is related to an increase in
patient appointment
cancellations and staff shortages.
We are continuing to monitor these trends closely and expect patient traffic to
increase as the quarter progressed.
Although someagain once cases of COVID-19 restrictions are still in place in parts of Europe,
we
expect these markets to recover but at a slower pace.moderate.
 
In contrast to our dental business, during the three months
ended March 26,June 25, 2022, our medical business benefited from an increasestrong sales
 
in sales volume of COVID-19point-of-care diagnostic tests including
flu test kits, as well as generic pharmaceuticals and
point-of-care diagnostics. equipment.
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
 
of COVID-19, our judgments
regarding estimates and impairments could change in the future.
 
There is an ongoing risk that the COVID-19
pandemic may again have a material adverse effect on our business, results of operations
 
and cash flows and may
result in a material adverse effect on our financial condition and liquidity.
 
However, the extent of the potential
impact cannot be reasonably estimated at this time.
30
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 10,600
 
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
 
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 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 manufacture certain
dental
specialty products and solutions in the areas of implants, orthodontics
 
and endodontics.
 
We have achieved scale in
these global businesses primarily through acquisitions as manufacturers
 
of these products typically do not utilize a
distribution channel to serve customers.
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 and
 
and other institutions.
 
Our
global medical businesses serve office-based medical practitioners, ambulatory
 
surgery centers, other alternate-care
settings and other institutions.
The health care distribution reportable segment aggregates our global
 
dental and medical operating segments.
 
This
segment distributes consumable products, small equipment, laboratory products,
 
products, large equipment, equipment repair
services, branded and generic pharmaceuticals, vaccines, surgical products, dental
 
specialty products (including
implant, orthodontic and endodontic products), diagnostic tests, infection-control
 
products,
PPE and vitamins.
 
Our global technology and value-added services business provides software,
 
technology and other value-added
services to health care practitioners.
 
Our technology business offerings include practice management software
systems for dental and medical practitioners.
 
Our value-added practice solutions include practice consultancy,
education, revenue cycle management and financial services on a non-recourse
 
basis, e-services, practice
technology, network and hardware services, as well as consulting, and continuing education services for
practitioners.
A key element to grow closer to our customers is our One Schein
initiative, which
is a unified go-to-market
approach that enables practitioners to work synergistically with our supply chain,
 
equipment sales and service and
other value-added services, allowing our customers to leverage
 
the combined value that we offer through a single
program.
 
Specifically, One Schein provides customers with streamlined access to our comprehensive offering of
national brand products, our private label 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.
31
Industry Overview
In recent years, the health care industry has increasingly focused on cost containment.
 
This trend has benefited
distributors capable of providing a broad array of products and services at
 
low prices.
 
It also has accelerated the
growth of HMOs, group practices, other managed care accounts and collective
 
buying groups, which, in addition to
their emphasis on obtaining products at competitive prices, tend to
 
favor distributors capable of providing
specialized management information support.
 
We believe that the trend towards cost containment has the potential
to favorably affect demand for technology solutions, including software, which can
 
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
 
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, and managing and tracking vaccination status and ongoing
 
ongoing testing for exempt employees could
could potentially increase our costs, as could addressing inconsistent COVID-19
 
vaccination mandates.
 
As a result, we
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 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
 
typically made by the
practitioner or an administrative assistant.
 
Supplies and small equipment are generally purchased from more
 
than
one distributor, with one generally serving as the primary supplier.
The trend of consolidation extends to our customer base.
 
Health care practitioners are increasingly seeking to
partner, affiliate or combine with larger entities such as hospitals, health systems, group practices or physician
hospital organizations.
 
In many cases, purchasing decisions for consolidated groups
 
are made at a centralized or
professional staff level; however, orders are delivered to the practitioners’ offices.
We believe that consolidation within the industry will continue to result in a number of distributors, particularly
those with limited financial, operating and marketing resources, seeking
 
to combine with larger companies that can
provide growth opportunities.
 
This consolidation also may continue to result in distributors seeking
 
to acquire
companies that can enhance their current product and service offerings or provide
 
opportunities to serve a broader
customer base.
32
Our trend with regard to acquisitions and joint ventures has been to expand
 
our role as a provider of products and
services to the health care industry.
 
This trend has resulted in our expansion into service areas that complement
 
our
existing operations and provide opportunities for us to develop synergies with, and
 
thus strengthen, the acquired
businesses.
As industry consolidation continues, we believe that we are positioned
 
to capitalize on this trend, as we believe we
have the ability to support increased sales through our existing infrastructure, although
 
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
 
possible candidates for joint venture or
acquisition and intend to continue to seek opportunities to expand our
 
role as a provider of products and services to
the health care industry.
 
There can be no assurance that we will be able to successfully pursue
 
any such
opportunity or consummate any such transaction, if pursued.
 
If additional transactions are entered into or
consummated, we would incur merger and/or acquisition-related costs, and
 
there can be no assurance that the
integration efforts associated with any such transaction would be successful.
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, in 20212022 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%27% during
 
the same period.
As a result of these market dynamics, annual expenditures for health
 
care services continue to increase in the
United States.
 
We believe that demand for our products and services will grow while continuing to be impacted by
current and future operating, economic, and industry conditions.
The Centers
for Medicare and Medicaid Services,
or CMS, published “National Health Expenditure Data” indicating
 
that total national health care spending reached
approximately $4.1 trillion in 2020, or 19.7% of the nation’s gross domestic product, the benchmark
 
measure for
annual production of goods and services in the United
States.
 
Health care spending is projected to reach
approximately $6.2 trillion in 2028, approximately 19.7% of the
 
nation’s projected gross domestic product.
 
The
latest projections begin after the latest historical year 2018(2020) 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.2030.
Government
Certain of our businesses involve the distribution, manufacturing,
importation, 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
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 government and state governments have also increased
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.
In addition, certain of our businesses must operate in compliance with
 
a variety of burdensome and complex billing
and record-keeping requirements in order to substantiate claims for payment under
 
federal, state and commercial
healthcare reimbursement programs.
 
One of these businesses was recently suspended by CMS from
 
receiving
payments from Medicare, although it is permitted to continue to perform
 
and bill for Medicare services.
 
The
33
amounts billed are being deposited in an escrow account pending resolution
 
of an audit.
 
The Company hasWe have not recognized
recognized revenue for these services and hashave currently deferred slightly over $8
$13 million in revenue (including $4
(including $8 million deferred during
the threesix months ended March 26,June 25, 2022 and slightly
over $4$5 million deferred during
the
three months ended December 25, 2021).
Government and private insurance programs fund a large portion of the total cost of medical
 
care, and there have
been efforts to limit such private and government insurance programs, including efforts,
 
thus far unsuccessful, to
seek repeal of the entire United States Patient Protection and Affordable Care Act,
 
as amended by the Health Care
and Education Reconciliation Act, each enacted in March 2010, (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
Our businesses are generally subject to numerous laws and regulations that could
 
impact our financial performance,
and failure to comply with such laws or regulations could have a
 
material adverse effect on our business.
A more detailed discussion of governmental laws and regulations
 
is included in Management’s Discussion &
Analysis of Financial Condition and Results of Operations,
contained in our
Annual Report on Form 10-K for the
fiscal year ended December 25, 2021, filed with the SEC on February
15, 2022.
Results of Operations
The following table summarizes the significant components of our operating
 
results for the three and six months
ended June 25, 2022 and June 26, 2021 and cash flows for the threesix
months ended March 26,June 25, 2022 and March 27,June 26, 2021:
Three Months Ended
MarchSix Months Ended
June 25,
June 26,
March 27,June 25,
June 26,
2022
2021
2022
2021
Operating results:
Net sales
 
$
3,1793,030
$
2,9252,967
$
6,209
$
5,892
Cost of sales
 
2,2062,085
2,0342,076
4,291
4,110
Gross profit
 
973945
891
1,918
1,782
Operating expenses:
Selling, general and administrative
 
682680
614635
1,362
1,249
Depreciation and amortization
4745
4445
92
89
Restructuring costs
 
-
31
-
4
Operating income
$
244220
$
230210
$
464
$
440
Other expense, net
 
$
(6)
$
(5)
$
(4)(11)
$
(9)
Net income
186167
175164
353
339
Net income attributable to Henry Schein, Inc.
181160
166156
Three341
322
Six Months Ended
MarchJune 25,
June 26,
March 27,
2022
2021
Cash flows:
 
Net cash provided by operating activities
$
93250
$
63222
Net cash used in investing activities
(27)(59)
(223)(341)
Net cash used in financing activities
(62)(195)
(120)(139)
34
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 and six months ended March 27,June 26, 2021, we recorded restructuring
 
restructuring costs of $3 million.$1 million and $4 million,
respectively.
 
As of March 26,
June 25, 2022 and December 25, 2021, the remaining
accrued balance for restructuring costs
costs was $3$1 million and $4 million, respectively.
respectively.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 to record restructuring charges in
2022 and 2023, however an estimate of the amount of these charges has not yet been
determined.
Any restructuring
charges are expected primarily to include severance pay and facility-related costs.
The expense savings realized
from this plan are expected to mainly affect 2023 and beyond.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3335
Three Months Ended March 26,June 25, 2022 Compared to Three Months Ended March 27,June 26, 2021
Net Sales
Net sales were as follows:
MarchJune 25,
% of
June 26,
% of
March 27,
% of
Increase / (Decrease)
2022
Total
2021
Total
$
%
Health care distribution
(1)
Dental
 
$
1,8281,853
57.561.1
%
$
1,7891,912
61.264.4
%
$
39(59)
2.2(3.1)
%
Medical
 
1,172996
36.932.9
991902
33.930.4
18194
18.310.3
 
Total health care distribution
 
3,0002,849
94.494.0
2,7802,814
95.194.8
22035
7.91.2
Technology and value-added services
(2)
179181
5.66.0
145153
4.95.2
3428
23.418.1
Total
 
$
3,1793,030
100.0
%
$
2,9252,967
100.0
%
$
25463
8.72.1
(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%2.1% increase in net sales includes an increase of 10.1%4.5% in local currency
 
sales (7.7%(2.4% increase in internally
generated sales and 2.4%2.1% growth from acquisitions) partially offset by a decrease
 
of 1.4%2.4% related to foreign
currency exchange.
 
We estimate that sales of PPE and COVID-19 related products were approximately $487$259
million, an increasea decrease of 4.4% 28.8%
versus the prior year.
 
Excluding PPE and COVID-19 related products, the estimated
increase in internally generated local currency sales was 8.9%6.7%.
The 2.2% increase3.1% decrease in dental net sales includes an increase of 4.4%0.4% in local
 
currency sales (3.5% increase(0.3% decrease in
internally generated sales and 0.9%0.7% growth from acquisitions) partially offset by a decrease
 
decrease of 2.2%3.5% related to foreign
foreign currency exchange.
 
The 4.4%0.4% increase in local currency sales was attributable to an increasea decrease in dental
consumable
consumable merchandise sales of 2.4% (1.3% increase1.3% (2.2% decrease in internally generated
 
sales and 1.1%0.9% growth from
acquisitions) and an
increase in dental equipment and service
sales of 12.0% (11.9% increase7.0%,
all of which was attributable to growth in internally
generated sales and 0.1% growth from acquisitions).sales.
 
Our sales growth in dental merchandise was lower than our sales
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 andJune 25, 2022 due to a lesser extent
in North America, our dental
merchandise growth was impacted by lower patient traffic which beganrelated to increase as the
 
quarter progressed.an increase in patient
appointment cancellations compared to the comparable prior-year period as well as
 
a decrease in PPE sales.
Dental
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
approximately $143$114 million of PPE and COVID-19 related products, an estimated
decrease of 15.3% 37.2%
versus the
prior year.
 
Excluding PPE and COVID-19 related products, the estimated increase in
 
increase in internally generated local
currency dental
sales was 6.3%3.5%.
The 18.3%10.3% increase in medical net sales includes an increase of 18.5%10.6%
 
in local currency sales (14.7%(6.7% increase in
internally generated sales and 3.8%3.9% growth from acquisitions), partially offset by
 
a decrease of 0.2%0.3% related to
foreign currency exchange.
 
We estimate that our medical business recorded sales of approximately $344$145 million of
PPE and COVID-19 test kits, point-of-care diagnostics and other COVID-19
related products for the three months
ended March 26,June 25, 2022,
an estimated increasedecrease of 15.7%20.4%
compared to the prior year.
 
Excluding sales of PPE
and COVID-19 test kits, point-of-care diagnostics and other COVID-19related products,
 
related products, the estimated increase in
internally generated local currency medical sales was 14.5%13.6%.
The 23.4%18.1% increase in technology and value-added services net sales includes
 
an increase of 24.1%19.6%
 
in local
currency sales (11.1%(10.8% increase in internally generated sales and 13.0% 8.8%
growth from acquisitions)
partially offset by
a decrease of 0.7%1.5% related to foreign currency exchange.
 
During the quarter ended March 26,June 25, 2022, the trend for
transactional software sales improved compared to the prior year, as more patients visited dental practiceswe increased the number of users,
generating
worldwide, generating demand for our sales cycle management solutions, and also
 
and also from cloud-based solutions that
drive practice
efficiency and patient engagement.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3436
Gross Profit
Gross profit and gross margin percentages by segment and in total were as follows:
March 26,June 25,
Gross
March 27,June 26,
Gross
Increase
2022
Margin %
2021
Margin %
$
%
Health care distribution
 
$
857826
28.629.0
%
$
789786
28.427.9
%
$
6840
8.65.2
%
Technology and value-added services
116119
64.965.9
102105
70.368.9
14
13.813.0
Total
 
$
973945
30.631.2
$
891
30.530.0
$
8254
9.26.2
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$40 million, or 8.6%5.2%, 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, andincludes a $12$34 million increase in
the gross margin rates due to product mix and supplier rebates and $18 million additional
 
rebates.gross profit from
acquisitions, partially offset by a decrease of $12 million from internally generated
operations.
 
Technology and value-added services gross profit increased $14 million, or 13.8%13.0%, due to a $10an $11 million increase in
in internally generated sales and $8$5 million additional gross profit from acquisitions,
 
partially offset by a decrease of
$4of $2 million from gross margin rates due to product mix.
 
Technology and value-added services gross profit margin
margin decreased to 64.9%65.9% from 70.3%68.9% primarily due to lower gross margins of recently acquiredour continued investment
 
companies in theproduct development and
business services sector.customer service.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3537
Selling, General and Administrative
Selling, general and administrative expenses by segment and in
 
total were as follows:
% of
% of
March 26,June 25,
Respective
March 27,June 26,
Respective
Increase
2022
Net Sales
2021
Net Sales
$
%
Health care distribution
 
$
646637
21.522.4
%
$
592604
21.321.4
%
$
5433
9.15.6
%
Technology and value-added services
 
8388
46.448.5
6977
48.050.1
1411
19.214.4
Total
 
$
729725
23.9
$
681
22.9
$
66144
22.6
$
68
10.26.6
Selling, general and administrative expenses (including restructuring costs
 
in the three months ended March 27,June 26,
2021) increased $68$44 million, or 10.2%6.6%.
The $54$33 million increase in selling, general and administrative expenses within
 
our health care distribution segment
was attributable to an increase of $36$18 million of operating costs and an increase
 
of $21$17 million of additional costs
from acquired companies, partially offset by a decrease of $3$1 million in restructuring costs.
 
The $14$11 million
increase in selling, general and administrative expenses within our technology
 
and value-added services segment
was attributable to an increase of $7$6 million of operating costs and an
 
increase of $7$5 million of additional costs
from acquired companies.
As a component of total selling, general and administrative expenses,
 
selling expenses increased $57$22 million, or
14.8%5.4% to $443$433 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%14.3%
 
from 13.2%13.8%.
As a component of total selling, general and administrative expenses, general
 
and administrative expenses
increased $11$22 million, or 3.7%8.5% to $287$292 million primarily due to an increase
in payroll and payroll related
costs and
travel and convention expenses.
 
As a percentage of net sales, general and administrative expenses decreased
 
increased to
9.0%9.6% from 9.3%9.1%.
Other Expense, Net
Other expense, net, was as follows:
MarchJune 25,
June 26,
March 27,
Variance
2022
2021
$
%
Interest income
 
$
23
$
1
$
2
$
-
-120.8
%
Interest expense
 
(9)
(7)
(6)(2)
(30.4)
Other, net
-
1
(1)
(16.7)(90.3)
Other expense, net
 
$
(5)(6)
$
(4)(5)
$
(1)
(25.0)(13.3)
Interest income increased $2 million and interest expense increased $1
$2 million primarily due to increased interest
rates.
Income Taxes
For the three months ended March 26,June 25, 2022 our effective tax rate was 24.0%23.8% compared
 
to 25.1% 23.4%
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,June 25, 2022 primarily relates to state and foreign income taxes and interest
 
expense.
The difference between our
effective tax rate and the federal statutory tax rate for the three months ended June
26, 2021, was primarily due to
state and foreign income taxes, interest expense and tax charges and credits associated with
legal entity
reorganizations.
38
Six Months Ended June 25, 2022 Compared to Six Months Ended June 26, 2021
Net Sales
Net sales were as follows:
June 25,
% of
June 26,
% of
Increase/(Decrease)
2022
Total
2021
Total
$
%
Health care distribution
(1)
Dental
$
3,681
59.3
%
$
3,701
62.8
%
$
(20)
(0.5)
%
Medical
2,168
34.9
1,893
32.1
275
14.5
Total health care distribution
5,849
94.2
5,594
94.9
255
4.6
Technology and value-added services
(2)
360
5.8
298
5.1
62
20.7
Total
$
6,209
100.0
%
$
5,892
100.0
%
$
317
5.4
(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 5.4% increase in net sales includes an increase of 7.3% in local currency
revenue (5.0% increase in internally
generated revenue and 2.3% growth from acquisitions) partially offset by a decrease of
1.9% related to foreign
currency exchange.
We estimate that sales for the six months ended June 25, 2022 of PPE and COVID-19 related
products were approximately $747 million, an estimated decrease of 10.1%
versus the prior year.
Excluding PPE
and COVID-19 related products, the estimated increase in internally generated
local
currency sales was 7.5%.
The 0.5% decrease in dental net sales includes an increase of 2.3% in
local currency revenue (1.6% increase in
internally generated revenue and 0.7% growth from acquisitions) partially
offset by a decrease of 2.8% related to
foreign currency exchange.
The 2.3% increase in local currency sales was attributable to an increase in dental
consumable merchandise revenue of 0.5% (0.5% decrease in internally generated
revenue and 1.0% growth from
acquisitions), and an increase in dental equipment sales and service revenues
of 9.4% (9.3% increase in internally
generated revenue and 0.1% growth from acquisitions).
Our sales growth in dental merchandise was lower than our
sales growth in dental equipment during the three months ended June 25,
2022 due to lower patient traffic
compared to the comparable prior-year period as well as a decrease in PPE sales.
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 global dental sales for the six months ended June 25, 2022 of PPE and
COVID-19 related products were approximately $258 million,
an estimated decrease of 26.6% versus the prior
year.
Excluding PPE and COVID-19 related products, the estimated
increase in internally generated local currency
dental sales was 4.4%.
The 14.5% increase in medical net sales is attributable to an increase of
14.7% in local currency growth (10.9%
increase in internally generated revenue and 3.8% growth from acquisitions)
partially offset by a decrease of 0.2%
related to foreign currency exchange.
Globally, we estimate our medical business recorded sales of approximately
$489 million sales of such PPE and other COVID-19 related products
for the six months ended June 25, 2022, an
increase of approximately 1.9%
compared to the prior year.
Excluding PPE and COVID-19 related products, the
estimated increase in internally generated local currency medical sales
was 14.1%.
The 20.7% increase in technology and value-added services net sales
is attributable to an increase of 21.8% in local
currency revenue (11.0% increase in internally generated revenue and 10.8% growth from acquisitions) partially
offset by a decrease of 1.1% related to foreign currency exchange.
During the six months ended June 25, 2022, the
trend for transactional software sales improved as we increased the number of
users, generating demand for our
sales cycle management solutions, and also from cloud-based solutions that
drive practice efficiency and patient
engagement.
39
Gross Profit
Gross profit and gross margin percentages by segment and in total were as follows:
June 25,
Gross
June 26,
Gross
Increase
2022
Margin %
2021
Margin %
$
%
Health care distribution
$
1,683
28.8
%
$
1,575
28.1
%
$
108
6.9
%
Technology and value-added services
235
65.4
207
69.6
28
13.4
Total
$
1,918
30.9
$
1,782
30.2
$
136
7.7
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 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 $108 million, or 6.9% primarily
due to the increase in net sales
discussed above.
In addition, health care distribution gross profit margin benefitted from supplier
rebates due to
increased purchase volumes compared to the comparable prior-year period.
The overall increase in our health care
distribution gross profit is attributable to a $46 million increase in gross profit
due to the increase in the gross
margin rates, $37 million additional gross profit from acquisitions and $25 million
increase in internally generated
revenue.
Technology and value-added services gross profit increased $28 million, or 13.4%, attributable to an increase of
$20 million in internally generated revenue and $14 million additional
gross profit from acquisitions,
partially
offset by a $6 million decrease in gross margin rates.
Technology and value-added services gross profit margin
decreased to 65.4% from 69.6% primarily due to lower gross margins of recently
acquired companies in the
business services sector and our continued investment in product
development and customer service.
40
Selling, General and Administrative
Selling, general and administrative expenses by segment and in
total were as follows:
% of
% of
June 25,
Respective
June 26,
Respective
Increase
2022
Net Sales
2021
Net Sales
$
%
Health care distribution
$
1,283
21.9
%
$
1,196
21.4
%
$
87
7.4
%
Technology and value-added services
171
47.5
146
49.1
25
16.7
Total
$
1,454
23.4
$
1,342
22.8
$
112
8.4
Selling, general and administrative expenses (including restructuring costs)
increased $112 million, or 8.4%.
The $87 million increase in selling, general and administrative expenses within
our health care distribution segment
was attributable to an increase of $53 million of operating costs and an increase
of $38 million of additional costs
from acquired companies, partially offset by a decrease of $4 million in restructuring costs.
The $25 million
increase in selling, general and administrative expenses within our technology
and value-added services segment
was attributable to an increase of $13 million of operating costs and an increase
of $12 million of additional costs
from acquired companies.
As a component of total selling, general and administrative expenses, selling
expenses increased $79 million, or
10.0% to $875 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 14.1%
from 13.5%.
As a component of total selling, general and administrative expenses, general
and administrative expenses
increased $33 million, or 6.1% to $579 million, primarily due to an increase
in payroll and payroll related costs and
travel and convention expenses.
As a percentage of net sales, general and administrative expenses
remained
consistent at 9.3%.
Other Expense, Net
Other expense, net, was as follows:
June 25,
June 26,
Variance
2022
2021
$
%
Interest income
$
5
$
3
$
2
47.6
%
Interest expense
(16)
(13)
(3)
(23.0)
Other, net
-
1
(1)
(110.0)
Other expense, net
$
(11)
$
(9)
$
(2)
(23.6)
Interest income increased $2 million and interest expense increased
$3 million primarily due to increased interest
rates.
Income Taxes
For the six months ended June 25, 2022, our effective tax rate was 23.9% compared
to 24.3% for the prior year
period.
The difference between our effective tax rate and the federal statutory tax rate for
the six months ended
June 25, 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 threesix months
ended March 27,June 26, 2021, was primarily due to state and foreign income taxes,
 
taxesinterest expense and interest expense.tax charges and
credits associated with legal entity reorganizations.
3641
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).
 
Working capital requirements generally result from increased sales, special inventory forward buy-in
opportunities and payment terms for receivables and payables.
 
Historically, sales have tended to be stronger during
the second half of the year and special inventory forward buy-in opportunities
 
have been most prevalent just before
the end of the year, and have caused our working capital requirements to be higher from the end of the
 
third quarter
to the end of the first quarter of the following year.
We finance our business primarily through cash generated from our operations, revolving credit facilities and debt
placements.
 
Please see
 
for further information.
 
Our ability to generate sufficient cash flows from
operations is dependent on the continued demand of our customers for
 
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$250 million for the
 
threesix months ended March 26,June 25, 2022, compared to
net cash provided by operating activities of $63$222 million for the comparable
 
prior year period.
 
The net change of
$3028 million was primarily attributable to higher net income and decreasedincreased
 
working capital, specifically a decrease in
in inventory
levels of PPE and COVID-19 related products, and reduced levels
of prepaid inventory and lower
outstanding vendor rebates.products.
 
These working capital decreasesincreases were partially offset by an increase in
reduced accounts
receivable balances resulting from increased sales. payable and accrued expenses.
Net cash used in investing activities was $27$59 million for the threesix
 
months ended March 26,June 25, 2022, compared to $223$341
million for the comparable prior year period.
 
The net change of $196$282 million was primarily attributable to
decreased payments for equity investments and business acquisitions.
Net cash used in financing activities was $62$195 million for the three
 
six months ended March 26,June 25, 2022, compared to net
cash used in financing activities of $120$139 million for the comparable
 
prior year period.
 
The net change of $58$56
million was primarily due to reduced net borrowings from debt, partially
offset by decreased repurchases of
common stock.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3742
The following table summarizes selected measures of liquidity and capital
 
resources:
March 26,June 25,
December 25,
2022
2021
Cash and cash equivalents
 
$
126108
$
118
Working
 
capital
 
(1)
1,6861,713
1,537
Debt:
Bank credit lines
 
$
9085
$
51
Current maturities of long-term debt
 
34
11
Long-term debt
 
773769
811
Total debt
 
$
866858
$
873
Leases:
Current operating lease liabilities
$
7674
$
76
Non-current operating lease liabilities
277276
268
(1)
 
Includes $77$76 million and $138 million of certain accounts receivable which serve as security for U.S. trade accounts receivable
securitization at March 26,June 25, 2022 and December 25, 2021, 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
 
to 4242.2 days as of March 26,June 25, 2022 from 43
42.3 days as of March 27,June 26, 2021.
 
During the threesix months ended March 26,June 25, 2022, we wrote off approximately $3 $4
million
of fully reserved accounts receivable against our trade receivable reserve.
 
Our inventory turns from operations
decreased to 4.74.6 as of March 26,June 25, 2022 from 5.25.1 as of March 27,June 26, 2021.
 
Our working capital accounts may be impacted
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 19 years, some of
which may include options to extend the leases for up to 10 years.
 
As of March 26,June 25, 2022, our right-of-use assets
related to operating leases were $331$327 million and our current and non-current
 
operating lease liabilities were $76$74
million and $277$276 million, respectively.
Stock Repurchases
On March 8, 2021, we announced the reinstatement of our share repurchase
program.
From March 3, 2003 through March 26,June 25, 2022, we repurchased $4.0$4.1 billion,
 
or 81,068,99382,414,390 shares, under our common
common stock repurchase programs, with $200$90 million available as of MarchJune 25, 2022
 
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.
3843
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,
 
except accounting policies adopted
as of December 26, 2021, 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.
39
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
 
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 MarchJune 25, 2022,
 
26, 2022, 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 activity
 
implementation undertaken during the quarter
and carried over from prior quarters when
considered in the aggregate, represents
a material change in our
internal
control over financial reporting.
During the three monthsquarter ended March 26,June 25, 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
separate information and financial accounting systems, have been included
 
included in our condensed consolidated financial statements
statements since their respective dates of acquisition.
 
In addition, during the quarter ended March 26, 2022,Additionally, we completed the
continued systems implementation activities
related to
the upgrade of the warehouse management system
for our Australian dental
business.
All continued acquisition integrations and systems implementation involveactivity
 
involve necessary and appropriate change-
managementchange-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 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.
4044
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.
ITEM 2.
 
UNREGISTERED SALES OF EQUITY SECURITIES
 
AND USE OF PROCEEDS
Purchases of equity securities by the issuer
 
Our share repurchase program announced on March 3, 2003
, originally allowed us to repurchase up to two million
shares pre-stock splits (eight million shares post-stock splits) of our common
 
stock, which represented
approximately 2.3% of the shares outstanding at the commencement of
 
the program.
 
Subsequent additional
increases totaling $4.1 billion, authorized by our Board of Directors,
 
to the repurchase program provide for a total
of $4.2 billion of shares of our common stock to be repurchased under this
 
program.
As of March 26,June 25, 2022, we had repurchased approximately $4.0$4.1 billion of
 
of common stock (81,068,993(82,414,390 shares) under
these initiatives, with $200$90 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 June 25, 2022.
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)
3/27/2022 through 4/23/2022
-
$
-
-
2,291,215
4/24/2022 through 5/28/2022
613,265
84.12
613,265
1,726,511
5/29/2022 through 6/25/2022
732,132
79.16
732,132
1,170,369
1,345,397
1,345,397
(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.
41requirements for equity-based transactions.
ITEM 5.
 
OTHER INFORMATION
On May 2,August 1, 2022, we committed to a restructuring plan focused on
funding the Compensation Committeepriorities of the Board of Directorsstrategic plan and
streamlining operations and other initiatives to increase efficiency.
 
(the “Compensation Committee”)We expect to record restructuring charges in
approved the adoption2022 and 2023, however an estimate of the Henry Schein, Inc. Executive Change in Controlamount of these charges has not yet been
 
Plan (the “CIC Plan”). The CIC Plan
contains the following material terms and conditions (terms capitalized butdetermined.
 
not defined in the below descriptionAny restructuring
have the definitions set forth in the CIC Plan):
•
Eligibility and Participation.
charges
 
Members of our Executive Management Committee (“EMC”)are expected primarily to include severance pay and facility-related
 
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
resigns 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) andcosts.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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.45
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,June 25, 2022, formatted in Inline XBRL (included within
Exhibit 101 attachments).+
+ Filed or furnished herewith.
** Indicates management contract or compensatory plan or agreement.
 
4346
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,August 2, 2022