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
June 25, 2022July 1, 2023
or
☐
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
 
ACT
 
OF 1934
For the transition period from ____________ to ____________
Commission File Number:
 
0-27078
HENRY SCHEIN, INC.
(Exact name of registrant as specified in its charter)
Delaware
11-3136595
(State or other jurisdiction of
(I.R.S. Employer Identification No.)
incorporation or organization)
135 Duryea Road
Melville
,
New York
(Address of principal executive offices)
11747
(Zip Code)
(
631
)
843-5500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $.01 per share
HSIC
The
Nasdaq
Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required
 
to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
 
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
 
past 90 days.
Yes
☒
 
No
 
☐
Indicate by
check mark
whether the registrant has submitted electronically every
 
has submitted
electronically every Interactive
Data File
required to
be submitted
pursuant
to
Rule
405
of
Regulation
S-T
(§232.405 of this chapter) during
 
the
preceding
12
months
(or
(or for
such
shorter
period
that
the
registrant
was
that the registrant was required to submit such files).
Yes
☒
 
No
 
☐
Indicate by
check mark
whether the
registrant is
a large
accelerated filer,
an accelerated
filer,
a non-accelerated
filer,
a smaller
reporting
company,
or
an
emerging
growth
company.
 
See
the
definitions
of
“large
“large accelerated
filer,”
 
“accelerated
filer,”
“smaller reporting company,”
and “emerging growth company”
 
in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
 
☐
 
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period
 
for
complying with any new or revised financial accounting standards provided
 
pursuant to Section 13(a) of the Exchange Act.
 
☐
Indicate by check mark whether the registrant is a shell company (as defined
 
in Rule 12b-2 of the Exchange Act).
Yes
☐
 
No
☒
As of July 25, 2022,31, 2023,
there were
136,114,744130,584,592
 
shares of the registrant’s common stock outstanding.
 
HENRY SCHEIN, INC.
INDEX
Page
3
4
5
6
7
7
8
9
9
10
11
12
13
1516
1718
1921
2022
2123
24
2426
26
2628
2728
2729
2830
4344
4345
4446
4446
44
4446
4547
4648
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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)
June 25,July 1,
December 25,31,
2023
2022
2021
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents
 
$
108137
$
118117
Accounts receivable, net of reservesallowance for credit losses of $
6370
 
and $
6765
1,4091,468
1,4521,442
Inventories, net
1,8231,843
1,8611,963
Prepaid expenses and other
 
449463
413466
Total current assets
 
3,7893,911
3,8443,988
Property and equipment, net
 
356439
366383
Operating lease right-of-use assets
327290
325284
Goodwill
 
2,8333,335
2,8542,893
Other intangibles, net
 
603678
668587
Investments and other
416493
424472
Total assets
 
$
8,3249,146
$
8,4818,607
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
 
$
901817
$
1,0541,004
Bank credit lines
 
85325
51103
Current maturities of long-term debt
 
466
116
Operating lease liabilities
74
7673
Accrued expenses:
Payroll and related
 
328275
385314
Taxes
 
124129
137132
Other
 
560590
593592
Total current liabilities
 
2,0762,276
2,3072,224
Long-term debt
 
7691,133
8111,040
Deferred income taxes
 
3350
4236
Operating lease liabilities
276284
268275
Other liabilities
 
357397
377361
Total liabilities
 
3,5114,140
3,8053,936
Redeemable noncontrolling interests
 
586820
613576
Commitments and contingencies
 
(nil)
(nil)
Stockholders' equity:
Preferred stock, $
0.01
 
par value,
1,000,000
 
shares authorized,
NaNnone
 
outstanding
0-
0-
Common stock, $
0.01
 
par value,
480,000,000
 
shares authorized,
136,439,560130,576,806
 
outstanding on June 25, 2022July 1, 2023 and
137,145,558131,792,817
 
outstanding on December 25, 202131, 2022
1
1
Additional paid-in capital
0-
0-
Retained earnings
 
3,8343,769
3,5953,678
Accumulated other comprehensive loss
 
(241)(210)
(171)(233)
Total Henry Schein, Inc. stockholders' equity
3,5943,560
3,4253,446
Noncontrolling interests
633626
638649
Total stockholders' equity
 
4,2274,186
4,0634,095
Total liabilities, redeemable noncontrolling
 
interests and stockholders' equity
$
8,3249,146
$
8,4818,607
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes.
4
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENTS
 
OF INCOME
(unaudited, in millions,
except share and per share data)
(unaudited)
Three Months Ended
Six Months Ended
June 25,
June 26,July 1,
June 25,
July 1,
June 26,25,
2023
2022
20212023
2022
2021
Net sales
 
$
3,100
$
3,030
$
2,9676,160
$
6,209
$
5,892
Cost of sales
 
2,125
2,085
2,0764,219
4,291
4,110
Gross profit
 
975
945
8911,941
1,918
1,782
Operating expenses:
Selling, general and administrative
 
707
680
6351,424
1,362
1,249
Depreciation and amortization
4549
45
9293
8992
Restructuring costs
018
1-
048
4-
Operating income
201
220
210376
464
440
Other income (expense):
Interest income
 
3
12
56
34
Interest expense
 
(9)(19)
(7)(8)
(16)(33)
(13)(15)
Other, net
 
0
1
0-
1-
-
Income before taxes, equity in earnings of affiliates and
and noncontrolling interests
186
214
205349
453
431
Income taxes
(41)
(52)
(47)(80)
(109)
(104)
Equity in earnings of affiliates
 
3
5
67
9
12
Net income
148
167
164276
353
339
Less: Net income attributable to noncontrolling interests
(8)
(7)
(8)(15)
(12)
(17)
Net income attributable to Henry Schein, Inc.
$
140
$
160
$
156261
$
341
$
322
Earnings per share attributable to Henry Schein, Inc.:
Basic
 
$
1.07
$
1.17
$
1.111.99
$
2.49
$
2.28
Diluted
 
$
1.06
$
1.16
$
1.101.97
$
2.46
$
2.26
Weighted-average common
 
shares outstanding:
Basic
 
130,905,899
137,350,488
140,358,428131,136,450
137,323,076
141,316,258
Diluted
 
131,873,174
138,869,064
141,656,883132,465,749
139,055,205
142,537,906
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes.
5
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENTS
 
OF COMPREHENSIVE INCOME
(unaudited, in millions)
(unaudited)
Three Months Ended
Six Months Ended
June 25,
June 26,July 1,
June 25,
July 1,
June 26,25,
2023
2022
20212023
2022
2021
Net income
$
148
$
167
$
164276
$
353
$
339
Other comprehensive income (loss), net of tax:
Foreign currency translation gain (loss)
3
(90)
3828
(87)
0
Unrealized gain (loss) from foreign currency hedging
activities
 
(1)
8
(2)(4)
9
1
Pension adjustment gain
0
0
0
1
Other comprehensive income (loss), net of tax
2
(82)
3624
(78)
2
Comprehensive income
 
150
85
200300
275
341
Less: Comprehensive income attributable to noncontrolling
 
interests:
 
Net income
(8)
(7)
(8)(15)
(12)
(17)
Foreign currency translation loss (gain) loss
1
9
(7)(1)
8
(1)
Comprehensive (income) loss attributable to noncontrolling
interests
 
(7)
2
(15)(16)
(4)
(18)
Comprehensive income attributable to Henry Schein, Inc.
 
$
143
$
87
$
185284
$
271
$
323
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
��
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes.
6
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENT
 
OF CHANGES IN
 
STOCKHOLDERS’ EQUITY
(unaudited, in millions, except share data)
(unaudited)
Accumulated
Common Stock
Additional
Other
Total
$0.01 Par Value
Paid-in
Retained
Comprehensive
Noncontrolling
Stockholders'
Shares
Amount
Capital
Earnings
Income / (Loss)
Interests
Equity
Balance, April 1, 2023
131,196,783
$
1
$
-
$
3,684
$
(213)
$
655
$
4,127
Net income (excluding $
5
attributable to redeemable
noncontrolling interests)
-
-
-
140
-
3
143
Foreign currency translation gain (excluding loss of $
1
attributable to redeemable noncontrolling interests)
-
-
-
-
4
-
4
Unrealized loss from foreign currency hedging activities,
net of tax benefit of $
1
-
-
-
-
(1)
-
(1)
Dividends declared
-
-
-
-
-
(27)
(27)
Change in fair value of redeemable noncontrolling interests
-
-
(17)
-
-
-
(17)
Initial noncontrolling interests and per share data)adjustments related to
business acquisitions
-
-
1
-
-
(5)
(4)
Repurchases and retirement of common stock
(638,095)
-
(7)
(44)
-
-
(51)
Stock-based compensation expense
20,598
-
14
-
-
-
14
Stock issued upon exercise of stock options
5,081
-
-
-
-
-
-
Shares withheld for payroll taxes
(6,671)
-
(3)
-
-
-
(3)
Settlement of stock-based compensation awards
(890)
-
1
-
-
-
1
Transfer of charges in excess of
capital
-
-
11
(11)
-
-
-
Balance, July 1, 2023
130,576,806
$
1
$
-
$
3,769
$
(210)
$
626
$
4,186
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 Redeemableredeemable
noncontrolling interests)
-
0-
0-
160
0-
2
162
Foreign currency translation loss (excluding loss of $
8
attributable to Redeemableredeemable 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 securitiesnoncontrolling interests
-
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.
7
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENT
 
OF CHANGES IN
 
STOCKHOLDERS' EQUITY
(unaudited, in millions, except share data)
(unaudited)
Accumulated
Common Stock
Additional
Other
Total
$.01 Par Value
Paid-in
Retained
Comprehensive
Noncontrolling
Stockholders'
Shares
Amount
Capital
Earnings
Income / (Loss)
Interests
Equity
Balance, December 31, 2022
131,792,817
$
1
$
-
$
3,678
$
(233)
$
649
$
4,095
Net income (excluding $
9
attributable to redeemable
noncontrolling interests)
-
-
-
261
-
6
267
Foreign currency translation gain (excluding gain of $
1
attributable to redeemable noncontrolling interests)
-
-
-
-
27
-
27
Unrealized loss from foreign currency hedging activities,
net of tax benefit of $
2
-
-
-
-
(4)
-
(4)
Dividends declared
-
-
-
-
-
(27)
(27)
Change in fair value of redeemable noncontrolling interests
-
-
(14)
-
-
-
(14)
Initial noncontrolling interests and per share data)adjustments related to
business acquisitions
-
-
1
-
-
(2)
(1)
Repurchases and retirement of common stock
(1,862,014)
-
(20)
(131)
-
-
(151)
Stock-based compensation expense
1,036,898
-
24
-
-
-
24
Stock issued upon exercise of stock options
15,860
-
1
-
-
-
1
Shares withheld for payroll taxes
(405,865)
-
(32)
-
-
-
(32)
Settlement of stock-based compensation awards
(890)
-
1
-
-
-
1
Transfer of charges in excess of
capital
-
-
39
(39)
-
-
-
Balance, July 1, 2023
130,576,806
$
1
$
-
$
3,769
$
(210)
$
626
$
4,186
Accumulated
Common Stock
Additional
Other
Total
$.01 Par Value
Paid-in
Retained
Comprehensive
Noncontrolling
Stockholders'
Shares
Amount
Capital
Earnings
Income / (Loss)
 
Interests
Equity
Balance, December 25, 2021
137,145,558
$
1
$
0-
$
3,595
$
(171)
$
638
$
4,063
Net income (excluding $
9
 
attributable to Redeemableredeemable
noncontrolling interests)
 
-
0-
0-
341
0-
3
344
Foreign currency translation lossgain (excluding lossgain of $
7
attributable to Redeemableredeemable noncontrolling interests)
-
0-
0-
0-
(79)
(1)
(80)
Unrealized gain from foreign currency hedging activities,
net of tax of $
3
-
0-
0-
0-
9
0-
9
Purchase of noncontrolling interests
-
0-
0-
0-
0-
(7)
(7)
Change in fair value of redeemable securitiesnoncontrolling interests
 
-
0-
7
0-
0-
0-
7
Repurchase and retirement of common stock
 
(1,345,397)
0-
(16)
(94)
0-
0-
(110)
Stock-based compensation expense
954,899
0-
27
0-
0-
0-
27
Stock issued upon exercise of stock options
 
29,827
0-
2
0-
0-
0-
2
Shares withheld for payroll taxes
 
(342,347)
0-
(29)
0-
0-
0-
(29)
Settlement of stock-based compensation awards
(2,980)
0-
1
0-
0-
0-
1
Transfer of charges in excess of
 
capital
-
0-
8
(8)
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, December 26, 2020
142,462,571
$
1
$
0
$
3,455
$
(108)
$
636
$
3,984
Net income (excluding $
14
 
attributable to Redeemable
noncontrolling interests)
 
-
0
0
322
0
3
325
Foreign currency translation loss (excluding gain of $
1
attributable to Redeemable noncontrolling interests)
-
0
0
0
(1)
0
(1)
Unrealized gain from foreign currency hedging activities,
net of tax of $
1
-
0
0
0
1
0
1
Pension adjustment gain, net of tax of $
0
-
0
0
0
1
0
1
Change in fair value of redeemable securities
 
-
0
(133)
0
0
0
(133)
Initial noncontrolling interests and adjustments related to
business acquisitions
-
0
0
0
0
7
7
Repurchase and retirement of common stock
(2,867,557)
0
(27)
(174)
0
0
(201)
Stock-based compensation expense
299,561
0
30
0
0
0
30
Shares withheld for payroll taxes
(113,734)
0
(7)
0
0
0
(7)
Transfer of charges in excess of
capital
-
0
137
(137)
0
0
0
Balance, June 26, 2021
139,780,841
$
1
$
0
$
3,466
$
(107)
$
646
$
4,006
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes.
8
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENTS
 
OF CASH FLOWS
(unaudited, in millions)
(unaudited)
Six Months Ended
July 1,
June 25,
June 26,2023
2022
2021
Cash flows from operating activities:
Net income
 
$
353276
$
339353
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
 
111
108
99Non-cash restructuring charges
10
-
Stock-based compensation expense
24
27
30
Benefit fromProvision for losses on trade and other accounts receivable
 
02
(4)-
Provision for (benefit from)Benefit from deferred income taxes
(15)(3)
6(15)
Equity in earnings of affiliates
(9)(7)
(12)(9)
Distributions from equity affiliates
 
109
1110
Changes in unrecognized tax benefits
 
(1)3
(6)(1)
Other
 
(13)(9)
3(13)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
 
2118
10221
Inventories
 
4163
(124)4
Other current assets
 
(37)(1)
(86)(37)
Accounts payable and accrued expenses
 
(198)(295)
(136)(198)
Net cash provided by operating activities
250301
222250
Cash flows from investing activities:
Purchases of fixed assets
 
(43)(68)
(32)(43)
Payments related to equity investments and business acquisitions,
acquisitions, net of cash acquired
 
(7)(251)
(296)(7)
Proceeds from (payments for) loan to affiliate
63
(2)6
Other
 
(15)(24)
(11)(15)
Net cash used in investing activities
 
(59)(340)
(341)(59)
Cash flows from financing activities:
Net change in bank borrowings
 
30218
(5)30
Proceeds from issuance of long-term debt
 
0408
200-
Principal payments for long-term debt
 
(57)(366)
(120)(57)
Proceeds from issuance of stock upon exercise of stock options
 
21
02
Payments for repurchases and retirement of common stock
 
(110)(150)
(201)(110)
Payments for taxes related to shares withheld for employee taxes
(29)(33)
(8)(29)
Distributions to noncontrolling shareholders
(12)(6)
(4)(12)
Acquisitions of noncontrolling interests in subsidiaries
 
(19)(13)
(1)(19)
Net cash used inprovided by (used in) financing activities
(195)59
(139)(195)
Effect of exchange rate changes on cash and cash equivalents
(6)-
4(6)
Net change in cash and cash equivalents
(10)20
(254)(10)
Cash and cash equivalents, beginning of period
 
118117
421118
Cash and cash equivalents, end of period
 
$
108137
$
167108
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTSSTATEMENT
S
(in millions, except share and per share data)
 
(unaudited
)
9
Note 1 – Basis of Presentation
Our condensed consolidated financial statements include the accounts of Henry
 
Schein, Inc. and all of our
controlled 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
 
influence the operating or
financial decisions are accounted for under the equity method.
 
Certain prior period amounts have been reclassified
to conform to the current period presentation.
These reclassifications, individually and in the aggregate, did
not
have a material impact on our condensed consolidated financial condition,
results of operations or cash flows.
Our accompanying unaudited condensed consolidated financial statements
 
have been prepared in accordance with
accounting principles generally accepted in the United States
 
(“U.S. GAAP”) for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
 
Accordingly, they do not include all of the
information and footnote disclosures required by U.S. GAAP for complete financial
 
financial statements.
The unaudited interim condensed consolidated financial statements should be
 
read in conjunction with the audited
consolidated financial statements and notes to the consolidated financial
 
statements contained in our Annual Report
on Form 10-K for the year ended December 25, 202131, 2022 and with the information
 
contained in our other publicly-
available filings with the Securities and Exchange Commission.
 
The condensed consolidated financial statements
reflect all adjustments considered necessary for a fair presentation of the
 
the consolidated results of operations and
financial position for the interim periods presented.
 
All such adjustments are of a normal recurring nature.
 
The preparation of financial statements in conformity with accounting principles
 
generally accepted in the United
States requires us to make estimates and assumptions that affect the reported amounts of
 
assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements
 
statements and the reported amounts of
revenues and expenses during the reporting period.
 
Actual results could differ from those estimates.
 
The results of
operations for the three and six months ended June 25, 2022July 1, 2023 are not necessarily indicative
 
indicative of the results to be
expected for
any other interim period or for the year ending December 31, 2022.
30, 2023.
Our condensed consolidated financial statements reflect estimates and
assumptions made by us that affect, among
other things, our goodwill, long-lived asset and definite-lived intangible
asset valuation; inventory valuation; equity
investment valuation; assessment of the annual effective tax rate; valuation of
deferred income taxes and income
tax contingencies; the allowance for doubtful accounts; hedging activity;
supplier rebates; measurement of
compensation cost for certain share-based performance awards and cash bonus
plans; and pension plan
assumptions.
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 pledged as
collateral to the related debt.
 
The creditors have recourse to us for losses on these trade accounts
 
receivable.
 
At
June 25, 2022July 1, 2023 and December 25, 2021,31, 2022, certain trade accounts receivable that
 
that can only be used to settle obligations of
of this VIE were $
7678
 
million and $
138327
 
million, respectively, and the liabilities of this VIE where the creditors have
recourse to us were $
60
 
million and $
105255
 
million, respectively.
Our condensed consolidated financial statements reflect estimates and
assumptions made by us that affect, among
other things, our goodwill, long-lived asset and definite-lived intangible
asset valuation; inventory valuation; equity
investment valuation; assessment of the annual effective tax rate; valuation of
deferred income taxes and income
tax contingencies; the allowance for doubtful accounts; hedging activity;
supplier rebates; measurement of
compensation cost for certain share-based performance awards and cash bonus
plans; and pension plan
assumptions.
Due to the significant uncertainty surrounding the future impact of
COVID-19, our judgments
regarding estimates and impairments could change in the future.
There is an ongoing risk that the 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
.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTSSTATEMENT
S
(in millions, except share and per share data)
 
(unaudited
)
10
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 six months ended June 25, 2022,July 1, 2023,
as compared to the critical accounting policies described in Item 7 of our Annual
 
Report on Form 10-K for the year
ended December 25, 2021.31, 2022.
Accounting Pronouncements Adopted
On
December 26, 2021
we adopted Accounting Standards Update (“ASU”) No. 2021 – 08, “Accounting
for
Contract Assets and Contract Liabilities from Contracts with Customers”
(Subtopic 805), as early adoption of this
ASU was permitted.
ASU 2021 – 08 requires an acquirer to recognize and measure
contract assets and contract
liabilities acquired in a business combination in accordance with Topic 606.
At the acquisition date, an acquirer
should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts.
To achieve this, an acquirer may assess how the acquiree applied Topic 606 to determine what to record for the
acquired revenue contracts.
Generally, this should result in an acquirer recognizing and measuring the acquired
contract assets and contract liabilities consistent with how
they were recognized and measured in the acquiree’s
financial statements.
Our
adoption
of ASU 2021 - 08 did not have a material impact on our consolidated
financial
statements.
Recently Issued Accounting Standards
In March 2020,September 2022, the Financial Accounting Standards Board (“FASB”) issued ASUAccounting Standards Update
(“ASU”) No. 2020-04, “Reference Rate
Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” which provides
optional expedients and exceptions for applying U.S. GAAP to contracts,2022-04, “Liabilities – Supplier Finance Programs (Subtopic
 
hedging relationships405-50): Disclosure of Supplier Finance
Program Obligations,” which will increase transparency of supplier finance
programs by requiring entities that use
such programs in connection with the purchase of goods and other
transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) orservices to disclose
 
by anothercertain qualitative and quantitative
reference rate expected to be discontinued because of reference rate reform.information about such programs.
 
TheASU 2022-04 is effective for fiscal years beginning after December 15, 2022,
including interim periods within those fiscal years, except for amended
roll forward information, which is effective
for fiscal years beginning after December 15, 2023.
We do not expect that the requirements of this guidance was effective beginningwill
March 12, 2020 and can be applied prospectively throughhave a material impact on our condensed consolidated financial statements.
In December 31,
2022.
In January 2021,2022, the FASB issued
ASU 2021-01, ReferenceNo. 2022-06, “Reference Rate Reform (Topic 848): Scope (“ASU 2021-01”).
ASU 2021-01 provides temporaryDeferral of the
Sunset Date of Topic 848,” which extends the period of application of temporary optional expedients and exceptionsfrom
December 21, 2022 to certain guidance in U.S. GAAP to ease
the financial reporting burdens related
to the expected market transition from LIBOR and other interbank offered rates
to alternative reference rates, such
as the Secured Overnight Financing Rate.
The guidance is effective upon issuance, on January 7, 2021, and can be
applied through December 31, 2022.2024.
 
We do not expect that the requirements of this guidance will have a material
material impact on our condensed consolidated financial statements.
In March 2022, the FASB issued ASU No. 2022-01, “Derivatives and Hedging (Topic 815): Fair Value
Hedging –
Portfolio Layer Method,” which will expand companies' abilities
to hedge the benchmark interest rate risk of
portfolios of financial assets (or beneficial interests) in a fair value hedge.
This ASU expands the use of the
portfolio layer method (previously referred to as the last-of-layer
method) to allow multiple hedges of a single
closed portfolio of assets using spot starting, forward starting and amortizing-notional
swaps.
It also permits both
prepayable and non-prepayable financial assets to be included in the closed
portfolio of assets hedged in a portfolio
layer hedge.
This ASU further requires that basis adjustments not be allocated
to individual assets for active
portfolio layer method hedges, but rather be maintained on the closed portfolio
of assets as a whole.
ASU 2022 –
01 is effective for fiscal years beginning after December 15, 2022, including interim periods
within those fiscal
years.
Early adoption is permitted for any entity that has adopted the amendments
in ASU 2017-12.
We do not
expect that the requirements of this guidance will have a material impact
on our consolidated financial statements.
In March 2022, the FASB issued ASU No. 2022-02, “Financial Instruments – Credit Losses (Topic 326): Troubled
Debt Restructuring and Vintage Disclosures”.
The amendments in this ASU eliminate the accounting guidance
for
troubled debt restructurings by creditors that have adopted the Current Expected
Credit Losses model and enhance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTSSTATEMENT
S
(in millions, except share and per share data)
 
(unaudited
)
11
the disclosure requirements for loan refinancings and restructurings
made with borrowers experiencing financial
difficulty.
In addition, the amendments require a public business entity
to disclose current-period gross write-offs
for financing receivables and net investment in leases by year of origination
in the vintage disclosures.
ASU 2022
– 02 is effective for fiscal years beginning after December 15, 2022, including
interim periods within those fiscal
years.
Early adoption is permitted for any entity that has adopted the amendments
in ASU No. 2016-13, “Financial
Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”.
We do not
expect that the requirements of this guidance will have a material impact
on our consolidated financial statements.
Note 3 – RevenueNet Sales from Contracts with Customers
Revenue isNet sales are recognized in accordance with policies disclosed in Item
8 of our
Annual Report on Form 10-K for
the year ended December 25, 2021.31, 2022.
Disaggregation of Net Sales
The following table disaggregates our Netnet sales by reportable segment and geographic
 
area:
Three Months Ended
Six Months Ended
July 1, 2023
July 1, 2023
North
America
International
Global
North
America
International
Global
Net sales:
Health care distribution
Dental
$
1,169
$
788
$
1,957
$
2,313
$
1,542
$
3,855
Medical
925
25
950
1,876
45
1,921
Total health care distribution
2,094
813
2,907
4,189
1,587
5,776
Technology
and value-added services
168
25
193
334
50
384
Total net sales
$
2,262
$
838
$
3,100
$
4,523
$
1,637
$
6,160
Three Months Ended
 
Six Months Ended
June 25, 2022
June 25, 2022
North
America
International
Global
North
America
International
Global
Net Sales:sales:
Health care distribution
 
Dental
 
$
1,124
$
729
$
1,853
$
2,229
$
1,452
$
3,681
Medical
 
977
19
996
2,127
41
2,168
Total health care distribution
2,101
748
2,849
4,356
1,493
5,849
Technology
 
and value-added services
 
158
23
181
314
46
360
Total revenuesnet sales
$
2,259
$
771
$
3,030
$
4,670
$
1,539
$
6,209
Three Months Ended
Six Months Ended
June 26, 2021
June 26, 2021
North
America
International
Global
North
America
International
Global
Net Sales:
Health care distribution
Dental
$
1,129
$
783
$
1,912
$
2,174
$
1,527
$
3,701
Medical
875
27
902
1,838
55
1,893
Total health care distribution
2,004
810
2,814
4,012
1,582
5,594
Technology
and value-added services
131
22
153
255
43
298
Total revenues
$
2,135
$
832
$
2,967
$
4,267
$
1,625
$
5,892
At December 25, 2021, the current portion of contract liabilities of $Deferred Revenue
89
million was reported in Accrued expenses:
Other, and $
10
million related to non-current contract liabilities was reported
in Other liabilities.
During the six
months ended June 25, 2022,July 1, 2023, we recognized in net sales $
56
 
million of the amounts that were
previously deferred at
December 25, 2021.31, 2022.
 
At June 25,December 31, 2022, the current portion of contract liabilities
of $
86
million was reported in accrued expenses: other, and $
8
million related to non-current contract liabilities was
reported in other liabilities.
At July 1, 2023, the current and non-current portion of contract liabilities
 
liabilities were $
8786
million
and $
9
 
million, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTSSTATEMENT
S
(in millions, except share and per share data)
 
(unaudited
)
12
Note 4
 
–
Segment Data
We conduct our business through
2two
 
reportable segments: (i) health care distribution and (ii) technology
 
and
value-added services.
These segments offer different products and services to the same customer base.
 
base. Our global
dental businesses serve office-based dental practitioners, dental laboratories, schools, andgovernment
 
and other institutions. Our
globalinstitutions.
Our medical businesses serve office-based medical practitioners,physician offices, urgent care centers, ambulatory care sites,
 
surgeryemergency
medical technicians, dialysis centers, home health, federal and state governments
and large enterprises, such as
group practices and integrated delivery networks, among other alternate-careproviders
across a wide range of specialties.
Our
settings and other institutions. Our global dental and medical groups serve
practitioners in
3233
 
countries worldwide.
The health care distribution reportable segment aggregates our global dental
 
dental and medical operating segments.
This
segment distributes consumable products, dental specialty products, small
 
small equipment, laboratory products, large
equipment, equipment repair services, branded and generic pharmaceuticals,
 
vaccines, surgical products,
diagnostic
tests, infection-control products, personal protective equipment (“PPE”)
 
and vitamins.
Our global technology and value-added services reportable segment provides
 
software, technology and other value-
added services to health care practitioners.
Our technology offerings include practice
management software systems
systems for dental and medical practitioners.
Our value-added practice solutions
include practice consultancy, education,
education, revenue cycle management and financial services on a non-recourse basis,
 
basis, e-services, practice
technology, network
and hardware services, as well as continuing education services for practitioners.
The following tables present information about our reportable and operating
segments:
Three Months Ended
Six Months Ended
June 25,
June 26,July 1,
June 25,
July 1,
June 26,25,
2023
2022
20212023
2022
2021
Net Sales:
Health care distribution
(1)
Dental
 
$
1,957
$
1,853
$
1,9123,855
$
3,681
$
3,701
Medical
 
950
996
9021,921
2,168
1,893
Total health care distribution
2,907
2,849
2,8145,776
5,849
5,594
Technology
 
and value-added services
(2)
193
181
153384
360
298
Total
 
$
3,100
$
3,030
$
2,9676,160
$
6,209
$
5,892(1)
Consists of consumable products, small equipment, laboratory products, large equipment, equipment repair services, branded and
generic pharmaceuticals, vaccines, surgical products, dental specialty products (including implant, orthodontic and endodontic
products), diagnostic tests, infection-control products, PPE products and vitamins.
(2)
Consists of practice management software and other value-added products, which are distributed primarily to health care providers,
practice consultancy, education, revenue cycle management and financial services on a non-recourse basis, e-services, continuing
education services for practitioners, consulting and other services.
Three Months Ended
Six Months Ended
June 25,
June 26,July 1,
June 25,
July 1,
June 26,25,
2023
2022
20212023
2022
2021
Operating Income:
Health care distribution
 
$
166
$
189
$
182311
$
400
$
379
Technology
 
and value-added services
 
35
31
2865
64
61Total
Total$
201
$
220
$
210376
$
464
$
440
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENT
S
(in millions, except share and per share data)
(unaudited
)
13
Note 5
–
Business Acquisitions
Our acquisition strategy is focused on investments in companies that
add new customers and sales teams, increase
our geographic footprint (whether entering a new country, such as emerging markets, or building scale where we
have already invested in businesses), and finally, those that enable us to access new products and technologies.
In
connection with our business acquisitions, the major classes of assets
and liabilities to which we generally allocate
acquisition consideration to, excluding goodwill, include identifiable
intangible assets (i.e., customer relationships
and lists, trademarks and trade names, product development and
non-compete agreements), inventory and accounts
receivable.
The estimated fair value of identifiable intangible assets is based
on critical judgments and assumptions
derived from analysis of market conditions, including discount rates, projected
revenue growth rates (which are
based on historical trends and assessment of financial projections), estimated
customer attrition and projected cash
flows.
These assumptions are forward-looking and could be affected by future economic and
market conditions.
While we use our best estimates and assumptions to accurately value
assets acquired and liabilities assumed at the
acquisition date as well as contingent consideration, where applicable, our
estimates are inherently uncertain and
subject to refinement.
As a result, within 12 months following the date of acquisition,
or the measurement period,
we may record adjustments to the assets acquired and liabilities assumed
with the corresponding offset to goodwill
within our condensed consolidated balance sheets.
At the end of the measurement period or final determination of
the values of such assets acquired or liabilities assumed, whichever
comes first, any subsequent adjustments are
recognized in our condensed consolidated statements of operations.
The accounting for certain of our acquisitions during the year ended December
31, 2022 had not been completed in
several areas, including but not limited to pending assessments of intangible
assets, and contingent consideration
assets and liabilities.
For the six months ended July 1, 2023 and June 25, 2022, there were
no material adjustments
recorded in our condensed consolidated statements of income relating to
changes in estimated values of assets
acquired, liabilities assumed and contingent consideration assets and liabilities.
Acquisition of Biotech Dental
On April 5, 2023, we acquired a
57
% voting equity interest in Biotech Dental (“Biotech Dental”), which
is a
provider of dental implants, clear aligners, and innovative digital dental
software based in France.
Biotech Dental
has several important solutions, including Nemotec, a comprehensive,
integrated suite of planning and diagnostic
software using open architecture that connects disparate medical devices
to create a digital view of the patient,
offering greater diagnostic accuracy and an improved patient experience.
The integration of Biotech Dental’s
software with Henry Schein One’s industry-leading practice management software solutions will help customers
streamline their clinical as well as administrative workflow for the ultimate
benefit of patients.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENT
S
(in millions, except share and per share data)
(unaudited
)
14
The following table aggregates
the preliminary estimated fair value, as of the date of acquisition, of
consideration
paid and net assets acquired in the Biotech Dental acquisition:
2023
Acquisition consideration:
Cash
$
216
Fair value of contributed equity share in a controlled subsidiary
25
Redeemable noncontrolling interests
182
Total consideration
$
423
Identifiable assets acquired and liabilities assumed:
Current assets
$
78
Intangible assets
119
Other noncurrent assets
76
Current liabilities
(50)
Long-term debt
(90)
Deferred income taxes
(38)
Other noncurrent liabilities
(16)
Total identifiable
net assets
79
Goodwill
344
Total net assets acquired
$
423
Goodwill is a result of expected synergies that are expected to originate from the
acquisition as well as the expected
growth potential of Biotech Dental.
The acquired goodwill is deductible for tax purposes.
The accounting for the acquisition of Biotech Dental has
not been completed in several areas, including but not
limited to pending assessments of accounts receivable, inventory, intangible assets, right-of-use lease assets,
accrued liabilities and income and non-income based taxes.
To assist management in the allocation, we engaged
valuation specialists to prepare appraisals.
We
will finalize the amounts recognized as the information necessary
to
complete the analysis is obtained. We expect to finalize these amounts as soon as possible but no later than one year
from the acquisition date.
The pro forma financial information has not been presented because the
impact of the Biotech Dental acquisition
during the three and six months ended July 1, 2023 was immaterial to our condensed
consolidated financial
statements.
Other 2023 Acquisitions
During the six months ended July 1, 2023, we acquired companies within
the dental technology, medical device
and medical distribution segments.
Our acquired ownership interest ranged between
51
% to
100
%.
The following table aggregates
the preliminary estimated fair value, as of the date of acquisition, of
consideration
paid and net assets acquired for these acquisitions during the six months
ended July 1, 2023.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTSSTATEMENT
S
(in millions, except share and per share data)
 
(unaudited
)
13
Note 5
–
Business Acquisitions
2022 Acquisitions
During the six months ended June 25, 2022, we made several acquisitions
within the technology and value-added
services segments.
The impact of these acquisitions
was not considered material to our condensed consolidated
financial statements.
2021 Acquisitions
We completed several acquisitions during the six months ended June 26, 2021 which were immaterial to our
financial statements.
Our acquired ownership interest ranged between approximately
51
% to
100
%.
Acquisitions
within our health care distribution segment included
companies that specialize in distribution of dental products, a
provider of home medical supplies, and product kitting and sterile packaging.
Within our technology and value-
added services segment, we acquired companies that focus on dental
marketing and website solutions, practice
transition services, and business analytics and intelligence software.
The following table aggregates the estimated fair value, as of the
date of acquisition, of consideration paid and net
assets acquired for acquisitions during the six months ended June 26, 2021.
While we use our best estimates and
assumptions to accurately value those assets acquired and liabilities
assumed at the acquisition date as well as
contingent consideration, where applicable, our estimates are inherently uncertain
and subject to refinement.
As a
result, during the measurement period we may record adjustments
to the assets acquired and liabilities assumed
with the corresponding offset to goodwill within our condensed consolidated balance sheets.
15
2023
Acquisition consideration:
Cash
$
30368
Deferred consideration
84
Estimated fair value of contingent consideration payable
3
Fair value of previously held equity method investment
29
Redeemable noncontrolling interests
12931
Total consideration
$
440135
Identifiable assets acquired and liabilities assumed:
Current assets
107$
21
Intangible assets
18458
Other noncurrent assets
347
Current liabilities
(44)(11)
Deferred income taxes
(17)(9)
Other noncurrent liabilities
(37)(10)
Total identifiable
 
net assets
22756
Goodwill
21379
Total net assets acquired
$
440
135
Goodwill is a result of the expected synergies and cross-selling opportunities that
 
these acquisitions are expected to
provide for us, as well as the expected growth potential.
 
Approximately half of the acquired goodwill is deductible
for tax purposes.
In connection with an acquisition of a controlling interest of our affiliate, we recognized
 
a gain of approximately
$
18
 
million related to the remeasurement to fair value of our previously
 
held equity investment, using a discounted
cash flow model based on Level 3 inputs, as defined in
Note 6 – Fair Value Measurements
.
The following table summarizes the preliminary identifiable intangible assets
 
acquired during the six months ended
July 1, 2023 and their estimated useful lives as of the date of the acquisition:
2023
Estimated Useful Lives (in years)
Customer relationships and lists
$
33
2
-
12
Trademarks/ Tradenames
6
5
-
10
Non-compete agreements
2
5
Product development
7
7
Patents
1
10
Other
9
5
Total
$
58
The pro forma financial information has not been presented because the
 
impact of the acquisitions during the three
and six months ended July 1, 2023 was immaterial to our condensed consolidated
 
financial statements.
Acquisition Costs
During the six months ended July 1, 2023 and June 25, 2022 we
 
incurred $
13
 
million and $
3
 
million, respectively,
in acquisition costs.
 
 
Table of Contents
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTSSTATEMENT
S
(in millions, except share and per share data)
 
(unaudited
)
1416
The following table summarizes the identifiable intangible assets acquired
during the six months ended June 26,
2021 and their estimated useful lives as of the date of the acquisition:
Estimated
Useful Lives
(in years)
Customer relationships and lists
$
124
5
-
12
Trademark / Tradename
33
5
-
7
Non-compete agreements
6
5
Product development
21
5
-
7
Total
$
184
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 six months ended June 25, 2022 and June 26, 2021, there
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
)
15
Note 6 – Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid
 
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
 
highest priority to unadjusted quoted prices
in active markets for identical assets or liabilities (Level 1) and the lowest priority
 
to unobservable inputs (Level 3).
 
The three levels of the fair value hierarchy are described as follows:
•
 
Level 1— Unadjusted quoted prices in active markets for identical assets
 
or liabilities that are accessible at the
measurement date.
•
 
Level 2— Inputs other than quoted prices included within Level 1 that are
 
observable for the asset or liability,
either directly or indirectly.
 
Level 2 inputs include: quoted prices for similar assets or liabilities
 
in active markets;
quoted prices for identical or similar assets or liabilities in markets
 
that are not active; inputs other than quoted
prices that are observable for the asset or liability; and inputs that are derived
 
derived principally from or corroborated by
observable market data by correlation or other means.
•
 
Level 3— Inputs that are unobservable for the asset or liability.
The following section describes the fair values of our financial instruments
 
and the methodologies that we used to
measure their fair values.
Investments and notes receivable
There are no quoted market prices available for investments in unconsolidated
 
affiliates and notes receivable;receivable.
however, weCertain of our notes receivable contain variable interest rates.
We believe the carrying amounts are a reasonable
estimate of fair value based on the interest rates in the applicable
 
in themarkets.
applicable markets.
Debt
The fair value of our debt (including bank credit lines)lines, current maturities
of long-term debt and long-term debt) is
classified as
Level 3 within the fair value hierarchy, and
as of June 25, 2022July 1, 2023 and December 25, 202131, 2022 was estimated at
$
8581,524
 
million and $
8731,149
 
million, respectively.
 
Factors
that we considered when estimating the fair value
of our
debt included
include market conditions, such as interest rates and
credit spreads.
Derivative contracts
Derivative contracts are valued using quoted market prices and significant
 
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
 
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 STATEMENTSSTATEMENT
S
(in millions, except share and per share data)
 
(unaudited
)
1617
Total
Return Swaps
The fair value for the total return swap is measured by valuing
the underlying exchange traded funds of the swap
using market-on-close pricing by industry providers as of the valuation
date and are classified within Level 2 of the
fair value hierarchy.
Redeemable noncontrolling interests
The values for Redeemableredeemable noncontrolling interests are classified within
 
Level 3 of the fair value hierarchy and are
based on recent transactions and/or implied multiples of earnings.
 
See
Note 11–12 – Redeemable Noncontrolling
Interests
for additional information.
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
 
June 25, 2022July 1, 2023 and December 25, 2021:31, 2022:
June 25,July 1, 2023
Level 1
Level 2
Level 3
Total
Assets:
Derivative contracts designated as hedges
$
-
$
21
$
-
$
21
Derivative contracts undesignated
-
4
-
4
Total return
swaps
-
3
-
3
Total assets
$
-
$
28
$
-
$
28
Liabilities:
Derivative contracts designated as hedges
$
-
$
3
$
-
$
3
Derivative contracts undesignated
-
3
-
3
Total liabilities
$
-
$
6
$
-
$
6
Redeemable noncontrolling interests
$
-
$
-
$
820
$
820
December 31, 2022
Level 1
Level 2
Level 3
Total
Assets:
Derivative contracts designated as hedges
$
0-
$
23
$
0-
$
23
Derivative contracts undesignated
0-
24
0-
24
Total assets
 
$
0-
$
2527
$
0-
$
2527
Liabilities:
Derivative contracts designated as hedges
$
0-
$
1
$
0-
$
1
Derivative contracts undesignated
0-
53
0-
53
Total return
 
swaps
0-
53
0-
53
Total liabilities
 
$
0-
$
117
$
0-
$
117
Redeemable noncontrolling interests
 
$
0-
$
0-
$
586576
$
586
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
$
613576
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTSSTATEMENT
S
(in millions, except share and per share data)
 
(unaudited
)
1718
Note 7 – Debt
Bank Credit Lines
Bank credit lines consisted of the following:
June 25,July 1,
December 25,31,
2023
2022
2021
Revolving credit agreement
$
0250
$
0-
Other short-term bank credit lines
8575
51103
Total
 
$
85325
$
51103
Revolving Credit Agreement
On
August 20, 2021
, we entered into a new $
11.0
 
billion revolving credit agreement (the “Credit“Revolving Credit Agreement”).
This
facility which matures on
August 20, 2026
replaced our $
750
million revolving credit facility which was scheduled
to mature in April 2022..
 
The interest rate on this revolving credit facility 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,At July 1, 2023, the interest
rate on borrowings under this revolving credit agreement was
5.25
% plus
0.80
%, for a combined rate of
6.05
%.
 
2021,
while the remaining LIBOR rates will be discontinued immediately
after June 30, 2023.
We do not expect the
discontinuation of LIBOR as a reference rate in our debt agreements
to have a material adverse effect on our
financial position or to materially affect our interest expense.
The Revolving Credit Agreement also requires, among other
things, that we
maintain certain maximum leverage ratios.
 
Additionally, the Revolving Credit Agreement contains customary
representations, warranties and affirmative
covenants as well as customary negative
covenants, subject to negotiated
negotiated exceptions, on liens, indebtedness,
significant corporate changes
(including (including mergers), dispositions and
certain restrictive
agreements.
 
As of June 25, 2022July 1,
2023 and December 25, 2021,31, 2022, we had $
250
million and $
0
 
million in borrowings, respectively under this revolving
revolving credit facility.
 
As of June 25, 2022July 1, 2023 and December 25, 2021,31, 2022, there were
$
9
 
million and $
9
 
million of
letters of credit,
respectively, provided to third parties under thethis credit facility.
On July 11, 2023, we amended and restated the Revolving Credit Agreement to, among other
things, extend the
maturity date to July 11, 2028 and update the interest rate provisions to reflect the current market
approach for a
multicurrency facility.
The interest rate in the amended Credit Agreement is based on Term Secured Overnight
Financing Rate (“Term SOFR”) plus a spread based on our leverage ratio at the end of each financial reporting
quarter (effective June 30, 2023).
Other Short-Term Bank Credit
 
Lines
As of June 25, 2022July 1, 2023 and December 25, 2021,31, 2022, we had various other short-term
 
bank credit lines available, in various
currencies, with a maximum borrowing capacity of which
$
85426
 
million and $
51402
million, respectively.
As of July 1, 2023
and December 31, 2022, $
75
million and $
103
 
million, respectively, were outstanding.
 
At June 25,July 1, 2023 and
December 31, 2022, and December 25, 2021, borrowings
under all of these credit lines had a weighted
average interest rate
of
9.9012.09
% and
10.4410.11
%, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTSSTATEMENT
S
(in millions, except share and per share data)
 
(unaudited
)
1819
Long-term debt
Long-term debt consisted of the following:
June 25,July 1,
December 25,31,
2023
2022
2021
Private placement facilities
 
$
6991,074
$
706699
U.S. trade accounts receivable securitization
60
105330
Various
 
collateralized and uncollateralized loans payable with interest,
in varying installments through 2023 at interest rates
ranging from
0.00
% to
3.509.42
% at June 25, 2022July 1, 2023 and
 
ranging from
2.620.00
% to
4.273.50
% at December 25, 202131, 2022
49
7
4
Finance lease obligations
716
710
Total
 
7731,199
8221,046
Less current maturities
 
(4)(66)
(11)(6)
Total long-term debt
 
$
7691,133
$
8111,040
Private Placement Facilities
Our private placement facilities were amended oninclude
October 20, 2021four
 
to include
4
(previously
3
) insurance
companies, have a total facility amount of $
1.5
 
billion, (previously $and
1.0
billion), and are available on an
uncommitted basis at fixed rate economic
terms to be agreed upon at
the time of issuance, from
time to time
through
October 20, 2026
(previously
June 23, 2023
).
 
The facilities allow us to issue senior promissory notes to the
the lenders at a
fixed rate based on an agreed upon spread over applicable treasury notes
 
treasury notes at the time of
issuance.
 
The term of each
possible issuance will be selected by us and
can range from
five
 
to
15 years
 
(with an
average life no longer than
12
years
).
 
The proceeds of any issuances under the facilities will be used for
 
for general
corporate purposes, including
working capital and capital expenditures,
to refinance existing indebtedness,
and/or
to fund potential acquisitions.
 
The agreements provide, among other things, that we maintain
 
certain maximum
leverage ratios, and contain
restrictions relating to subsidiary indebtedness,
liens, affiliate transactions, disposal
of
assets and certain changes in
ownership.
 
These facilities contain make-whole provisions in the event that we
 
pay
off the facilities prior to the
applicable due dates.
The components of our private placement facility borrowings, aswhich
 
have a weighted average interest rate of
3.65
%, as of June 25, 2022July 1, 2023 are presented in the following
table:
Amount of
Borrowing
Borrowing
 
Date of Borrowing
Outstanding
Rate
Due Date
January 20, 2012
$
50
3.45
%
January 20, 2024
December 24, 2012
50
3.00
December 24, 2024
June 16, 2017
100
3.42
June 16, 2027
September 15, 2017
100
3.52
September 15, 2029
January 2, 2018
100
3.32
January 2, 2028
September 2, 2020
100
2.35
September 2, 2030
June 2, 2021
100
2.48
June 2, 2031
June 2, 2021
100
2.58
June 2, 2033
May 4, 2023
75
4.79
May 4, 2028
May 4, 2023
75
4.84
May 4, 2030
May 4, 2023
75
4.96
May 4, 2033
May 4, 2023
150
4.94
May 4, 2033
Less: Deferred debt issuance costs
(1)
Total
$
6991,074
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTSSTATEMENT
S
(in millions, except share and per share data)
 
(unaudited
)
1920
U.S. Trade Accounts Receivable Securitization
We have a facility agreement based on the securitization of our U.S. trade accounts receivable that is structured as
an asset-backed securitization program with pricing committed for up
 
to
three years
.
 
Our currentThis facility whichagreement has a
had a purchase limit of $
350
million, was scheduled to expire on
April 29, 2022
.
On October 20, 2021, we
amended our U.S. trade accounts receivable securitization facility to
increase the purchase limit to $
450
 
million
with
2two
 
banks as agents, and extend the expiration date toexpires on
October 18, 2024December 15, 2025
.
As of June 25, 2022July 1, 2023 and December
25, 2021, 31, 2022, the borrowings outstanding
under this securitization facility were
$
60
million and $
330
 
million, and $
105
million,
respectively.
 
At June 25, 2022,July 1, 2023, the interest rate on borrowings under this facility was
was based on the asset-backed
commercial paper rate of
1.435.38
% plus
0.75
%, for a combined rate of
2.186.13
%.
 
At
December 25, 2021,31, 2022, the interest rate
on borrowings under this facility was
based on the asset-backed commercial
paper rate of
0.194.58
% plus
0.75
%, for a
combined rate of
0.945.33
%.
If our accounts receivable collection pattern changes due to customers
 
either paying late or not making payments,
our ability to borrow under this facility may be reduced.
We are required to pay a commitment fee of
30
 
to
35
 
basis points depending upon program utilization.
Term Loan
On July 11, 2023, we entered into a
three
-year $
750
million term loan credit agreement (the “Term Credit
Agreement”).
The interest rate on this term loan is based on the Term SOFR plus a spread based on our leverage
ratio at the end of each financial reporting quarter.
This term loan matures on July 11, 2026.
We plan to use this
new credit facility for working capital and general corporate purposes,
including, but not limited to, capital
expenditures, the repurchase of the Company’s capital stock and permitted refinancing of existing debt, as well as
for funding potential acquisitions.
The Term Credit Agreement requires, among other things, that we maintain
certain maximum leverage ratios.
Additionally, the Term
Credit Agreement contains customary representations,
warranties and affirmative covenants as well as customary negative covenants, subject
to negotiated exceptions, on
liens, indebtedness, significant corporate changes (including mergers), dispositions
and certain restrictive
agreements.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENT
S
(in millions, except share and per share data)
(unaudited
)
21
Note 8 – Income Taxes
For the six months ended June 25, 2022July 1, 2023 our effective tax rate was
23.922.8
%, compared to
24.323.9
% for the prior year
period.
 
The difference between our effective tax rate and the federal statutory tax rate for the sixprimarily
 
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 six months
ended June 26, 2021 primarily relates to state and foreign income taxes,
interest expense and tax charges and
credits associated with legal entity reorganizations.expense.
The total amount of unrecognized tax benefits, which are included in “Other
 
“other liabilities” within our condensed
consolidated balance sheets, as of June 25, 2022July 1, 2023 and December 25, 202131, 2022 was
 
was $
83103
 
million and $
8494
 
million,
respectively, of which $
6988
 
million and $
6980
 
million, respectively, would affect the effective tax rate if recognized.
 
It
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 2016.2019.
 
The tax years subject to examination by the
IRS include years 20172020 and forward.
 
DuringIn addition, limited positions reported in the quarter ended December 25, 2021, we were notified
by the IRS
that2017 tax year 2019 was selected for examination.
During the quarter ended September 26, 2020 we reached an agreementare subject
 
with the Advanced Pricing Division on anto IRS
appropriate transfer pricing methodology for the years 2014-2025.
The objective of this resolution was to mitigate
future transfer pricing audit adjustments.examination.
The total amounts of interest and penalties are classified as a component
 
of the provision for income taxes.
 
The
amount of tax interest expense/(credit)expense was $
1
million for the six months ended July 1, 2023 and $
0
 
million for the six
months ended June 25, 2022, and $
(3)
million for
the six months ended June 26, 2021.2022.
 
The total amount of accrued interest is included in “Other
“other liabilities,” and
was
$
1314
million as of June 25, 2022July 1, 2023 and $
12
 
million as of December 25, 2021.31, 2022.
 
NaN
The amount of penalties were accrued for theduring
the periods presented.presented were not material to our condensed consolidated financial
statements
.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTSSTATEMENT
S
(in millions, except share and per share data)
 
(unaudited
)
2022
Note 9 – Plan of Restructuring
On August 1, 2022, we committed to a restructuring plan focused on
funding the priorities of the strategic plan and
streamlining operations and other initiatives to increase efficiency.
We revised our previous expectations of
completion and now expect this initiative to extend through 2024.
We are currently unable in good faith to make a
determination of an estimate of the amount or range of amounts expected to
be incurred in connection with these
activities, both with respect to each major type of cost associated
therewith and with respect to the total cost, or an
estimate of the amount or range of amounts that will result in future
cash expenditures.
During the three and six months ended July 1, 2023, we recorded restructuring
costs of $
18
and $
48
million,
respectively.
The restructuring costs for these periods primarily related to
severance and employee-related costs,
accelerated amortization of right-of-use lease assets and fixed assets, and other
lease exit costs.
Included in
restructuring costs for the six months ended July 1, 2023 were
immaterial amounts related to the disposal of an
unprofitable U.S. business initiated during 2022 and completed during
the first quarter of 2023.
Restructuring costs recorded for the three and six months ended July 1,
2023 consisted of the following (there were
no
restructuring costs for the three and six months ended June 25, 2022):
Three Months Ended July 1, 2023
Health-Care
Distribution
Technology
and
Value-Added
Services
Total
Severance and employee-related costs
$
13
$
1
$
14
Accelerated depreciation and amortization
2
1
3
Exit and other related costs
1
-
1
Total restructuring
costs
$
16
$
2
$
18
Six Months Ended July 1, 2023
Health-Care
Distribution
Technology
and
Value-Added
Services
Total
Severance and employee-related costs
$
30
$
4
$
34
Accelerated depreciation and amortization
9
1
10
Exit and other related costs
2
1
3
Loss on disposal of a business
1
-
1
Total restructuring
costs
$
42
$
6
$
48
The following table summarizes,
by reportable segment, the activity related to the liabilities associated
with our
restructuring initiatives
for the period ended July 1, 2023.
The remaining accrued balance of restructuring costs as
of July 1, 2023 is included in accrued expenses: other within our condensed
consolidated balance sheet.
Liabilities
related to exited leased facilities are recorded within our current and non-current
operating lease liabilities within
our condensed consolidated balance sheet.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENT
S
(in millions, except share and per share data)
(unaudited
)
23
Technology
and
Health Care
Value-Added
Distribution
Services
Total
Balance, December 31, 2022
$
21
$
3
$
24
Restructuring costs
42
6
48
Non-cash asset impairment and accelerated
depreciation and amortization of right-of-use lease
assets and other long-lived assets
(9)
(1)
(10)
Cash payments and other adjustments
(24)
(5)
(29)
Balance, July 1, 2023
$
30
$
3
$
33
Note 910 – Legal Proceedings
Henry Schein, Inc. has been named as a defendant in multiple lawsuitsopioid
 
(currentlyrelated lawsuits (currently less than one-hundredone-
hundred and fifty
seventy-five (
150175
); in less than half of those cases one or more of Henry Schein,
Inc.’s subsidiaries is also named as a defendant in a
defendant)number of those cases).
 
Generally, the lawsuits allege that the manufacturers of prescription opioid drugs engaged
in a false
advertising campaign to expand the market for such drugs and their own
 
own market share and that the entities
in the
supply chain (including Henry Schein, IncInc. and its affiliated companies) reaped financial
 
financial rewards by refusing or
or otherwise failing to monitor appropriately and restrict the improper distribution
 
distribution of those drugs.
 
These actions
consist of some that have been consolidated within the MultiDistrict Litigation
 
(“MDL”) proceeding In Re National
Prescription Opiate Litigation (MDL No. 2804; Case No. 17-md-2804)
 
and are currently stayed, and others which
remain pending in state courts and are proceeding independently and outside
 
of the MDL.
 
At this time, the
following cases are set for trial: the action filed by Mobile County Board
 
of Health, et al., in Alabama state court,
which is currentlyhas been set for a jury trial on January 9, 2023;August 12, 2024; and the action filed
 
by DCH Health Care Authority, et al. in
Alabama state court, which is currently scheduled for a jury trial on July 24, 2023;
and the action filed by Florida
Health Sciences Center, Inc. (and
(and
38
 
other hospitals located throughout the State of Florida) in Florida state
 
Florida state court,
which is currently scheduled
for a jury trial in October 2024.
In June 2022, we settled
NaN
cases filed by
hospitals in West Virginia,
and settled with
1
additional hospital, for a total amount of
three-hundred thousand
dollars.
The
NaN
cases have been dismissed.May 2025.
 
Of Henry Schein’s 20212022 net sales of approximately $
12.412.6
 
billion from continuing
operations, sales of opioids represented less than
two-tenths
 
of 1 percent.
 
Opioids represent a negligible part of our
business.
 
We intend to defend ourselves vigorously against these actions.
In August 2022, Henry Schein received a Grand Jury Subpoena from the United
States Attorney’s Office for the
Western District of Virginia,
seeking documents in connection with an investigation of possible
violations of the
Federal Food, Drug & Cosmetic Act by Butler Animal Health Supply, LLC (“Butler”), a former subsidiary of
Henry Schein.
The investigation relates to the sale of veterinary prescription drugs
to certain customers.
In
October 2022, Henry Schein received a second Grand Jury Subpoena from
the United States Attorney’s Office for
the Western District of Virginia.
The October Subpoena seeks documents relating to payments Henry
Schein
received from Butler or Covetrus, Inc. (“Covetrus”).
Butler was spun off into a separate company and became a
subsidiary of Covetrus in 2019 and is no longer owned by Henry Schein.
We are cooperating with the
investigation.
From time to time, we may become a party to other legal proceedings,
 
including, without limitation, product
liability claims, employment matters, commercial disputes, governmental
 
inquiries and investigations (which may
in some cases involve our entering into settlement arrangements or consent
 
decrees), and other matters arising out
of the ordinary course of our business.
 
While the results of any legal proceeding cannot be predicted with certainty,
in our opinion none of these other pending matters are currently
 
anticipated to have a material adverse effect on our
consolidated financial position, liquidity or results of operations.
As of June 25, 2022,July 1, 2023, we had accrued our best estimate of potential losses relating
 
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 STATEMENTSSTATEMENT
S
(in millions, except share and per share data)
 
(unaudited
)
2124
Note 1011 – Stock-Based Compensation
Stock-based awards are provided to certain employees under the terms of
 
our 2020 Stock Incentive Plan and to
non-employee directors under the terms of our 2015 Non-Employee Director
 
Stock Incentive Plan (together, the
“Plans”).
 
The Plans are administered by the Compensation Committee of the Board
 
of Directors (the
“Compensation Committee”).
 
Historically, equity-based awards to our employees have been granted solely in the
form of time-based and performance-based restricted stock units (“RSUs”).
 
However, forwith the exception of our 2021 fiscalplan year in
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
andwhich non-qualified stock options which
focus on stock value appreciation and retention insteadwere issued in place of pre-establishedperformance-based
 
performance goals.RSUs.
 
Our non-employeeIn 2022, we granted time-
directors continuedbased and performance-based RSUs, as well as non-qualified stock
options.
For our 2023 plan year, we returned to receive
granting our employees equity-based awards for fiscal 2021
solely in the form of time-based
and performance-based RSUs.
 
In MarchOur
2022, the Compensation Committee reinstated performance-based
RSUs fornon-employee directors receive equity-based awards to employees for
fiscal 2022 and awarded grantssolely in the form
of time-based RSUs, performance-based
RSUs and non-qualified stock
options.
RSUs.
RSUs are stock-based awards granted to recipients with specified vesting provisions.
 
In the case of RSUs, common
stock is generally delivered on or following satisfaction of vesting conditions.
 
We issue RSUs to employees that primarily
vest (i) solely based on the recipient’s continued service over time, primarily with
four
-year cliff vesting and/or (ii)
based on achieving specified performance measurements and the recipient’s continued service over time, primarily
with
three
-year cliff vesting.
 
RSUs granted under the 2015 Non-Employee Director Stock Incentiveto our non-employee directors primarily are granted
 
Plan primarily
are granted with
12
-month
cliff vesting.
 
For these RSUs, we recognize the cost as compensation expense on
 
a
straight-line basis.
With respect to time-based RSUs, we estimate the fair value based on our closing stock price on the date of grant based on our closing
stock price at
the time of grant.
 
With respect to performance-based RSUs, the number of shares that ultimately vest and are
 
and are
received by the
recipient is based upon our performance as measured against specified
 
specified targets over a specified
period, as
determined by the Compensation Committee.
 
Although there is no guarantee that performance targets
will be
achieved, we estimate the fair value of performance-based RSUs based on
 
based on our closing stock price at time of
grant.
Each of the Plans provide for certain adjustments to the performance
 
measurement in connection with awards under
the Plans.
 
With respect to the performance-based RSUs granted under our 2020 Stock Incentive Plan, such
performance measurement adjustments relate to significant events, including,
 
without limitation, acquisitions,
divestitures, new business ventures, certain capital transactions (including share
 
repurchases), differences in
budgeted average outstanding shares (other than those resulting from capital
 
transactions referred to above),
restructuring costs, if any, certain litigation settlements or payments, if any, changes in accounting principles or in
applicable laws or regulations, changes in income tax rates in certain markets,
 
markets, foreign exchange fluctuations, the
financial impact either positive or negative, of the differencesdifference in projected earnings
 
generated by sales of COVID-
19COVID-19 test kits (solely
(solely with respect to performance-based RSUs
granted in the 2022 and
2023 plan years) and impairment charges
(solely with respect to performance-based RSUs granted in the 2023 plan
year), and unforeseen events or
circumstances affecting us.
Over the performance period, the number of shares of common stock that will
 
ultimately vest and be issued and the
related compensation expense is adjusted upward or downward based upon
 
our estimation of achieving such
performance targets.
 
The ultimate number of shares delivered to recipients and the
 
the related compensation cost
recognized as an expense will be based on our actual performance metrics as
 
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 arewere granted at an exercise price equal to our closing stock
 
price on the
date of grant.
 
Stock options issued beginning in 2021 and 2022 vest
one-third
 
per year based on the recipient’s continued
service, subject to the terms and conditions of the 2020 Stock Incentive Plan,
 
are fully vested
three years
 
from the
grant date and have a contractual term of
ten years
 
from the grant date, subject to earlier termination of the term
upon certain events.
 
Compensation expense for these stock options is recognized
 
using a graded vesting method.
 
We estimateestimated the fair value of stock options using the Black-Scholes valuation model.
 
In addition to equity-based awards granted in fiscal 2021 under the our long-term
incentive program, the
Compensation Committee granted a Special Pandemic Recognition Award under the 2020 Stock Incentive Plan to
recipients of performance-based RSUs under the 2018 long-term
incentive program.
The payout under the
performance-based restricted stock units granted under the fiscal 2018 long-term
incentive program (the “2018
LTIP”) was negatively impacted by the global COVID-19 pandemic.
Given the significance of the impact of the
pandemic on our
three-year
EPS goal under such equity awards and the contributions made by our
employees
(including those who received such awards), on March 3, 2021, the Compensation
Committee granted a Special
Pandemic Recognition Award to recipients of performance-based restricted stock units under the 2018 LTIP who
were employed by us on the grant date of the Special Pandemic
Recognition Award.
These time-based RSU
awards 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 $
15
million ($
12
million after-tax) and $
27
million ($
21
million after-tax) for the three and six months ended
June 25, 2022, respectively.
For the three and six months ended June 26, 2021, we recorded pre-tax share-based
compensation expense of $
17
million ($
13
million after-tax) and $
30
million ($
23
million after-tax), respectively.
Total unrecognized compensation cost related to unvested awards as of June 25, 2022 was $
116
million, which is
expected to be recognized over a weighted-average period of approximately
2.4
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 activities forDuring the six months
ended June 25, 2022 and June 26, 2021, respectively.
July 1, 2023 we did
no
The following weighted-average assumptions were used in determining
the most recent fair values oft grant any stock options
granted using the Black-Scholes valuation model:
2022
Expected dividend yield
0.0
%
Expected stock price volatility
27.40
%
Risk-free interest rate
3.25
%
Expected life of options (years)
6.00options.
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTSSTATEMENT
S
(in millions, except share and per share data)
 
(unaudited
)
2325
Our accompanying condensed consolidated statements of income reflect
pre-tax share-based compensation expense
of $
14
million ($
11
million after-tax) and $
24
million ($
19
million after-tax) for the three and six months ended
July 1, 2023, respectively.
For the three and six months ended June 25, 2022, we recorded pre-tax share-based
compensation expense of $
15
million ($
12
million after-tax) and $
27
million ($
21
million after-tax), respectively.
Total unrecognized compensation cost related to unvested awards as of July 1, 2023 was $
107
million, which is
expected to be recognized over a weighted-average period of approximately
2.4
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 consolidated statements of cash flows, there were no
benefits associated with tax deductions in
excess of recognized compensation as a cash inflow from financing
activities for the six months ended July 1, 2023
and June 25, 2022, respectively.
We have not declared cash dividends on our stock in the past and we do not anticipate declaring cash dividends in
the foreseeable future.
The expected stock price volatility is based on implied volatilities
from traded options on
our stock, historical volatility of our stock, and other factors.
The risk-free interest rate is based on the U.S.
Treasury yield curve in effect at the time of grant in conjunction with considering the expected life of options.
The
six
-year expected life of the options was determined using the simplified
method for estimating the expected term
as permitted under SAB Topic 14.
 
Estimates of fair value are not intended to predict actual future events or
 
the
value ultimately realized by recipients of stock options, and subsequent events
 
events are not indicative of the
reasonableness of the original estimates of fair value made by us.
The following table summarizes the stock option activity under the Plans
during the six months
ended June 25, 2022:July 1, 2023:
Stock Options
Weighted
Average
Weighted
Remaining
Average
Contractual
Aggregate
Exercise
Life inRemaining Contractual
 
 
Intrinsic
Shares
Price
YearsLife (in years)
 
Value
Outstanding at beginning of period
 
767,7171,117,574
$
63.24
Granted
406,443
86.1671.38
 
Exercised
 
(29,892)(17,905)
62.71
 
Forfeited
 
(9,656)(7,541)
71.7278.22
 
Outstanding at end of period
 
1,134,6121,092,128
$
71.3971.48
 
9.18.1
 
$
1012
Options exercisable at end of period
 
219,642568,623
$
62.9268.25
 
Weighted Average
Weighted
Average
Average
Remaining
Aggregate
Number of
Exercise
Remaining Contractual
Intrinsic
Options
Price
Life (in years)
Value
Vested
 
or expected to vest
894,356517,576
$
73.6875.12
9.28.3
$
74
The following tables summarize the activity of our unvested RSUs for
the six
months ended June 25, 2022:July 1, 2023:
Time-Based Restricted Stock Units
Performance-Based Restricted Stock Units
Weighted Average
Weighted Average
 
Grant Date Fair
Intrinsic Value
Grant Date Fair
Intrinsic Value
Shares/Units
Value Per Share
Per Share
Shares/Units
Value Per Share
Per Share
Outstanding at beginning of period
 
1,945,8621,756,044
$
58.7966.59
520,916
$
60.23
Granted
 
455,169407,570
86.1377.70
530,224
78.38
Vested
 
(501,944)(406,604)
54.7661.66
(630,294)
60.64
Forfeited
 
(28,807)(54,420)
65.8871.07
(49,524)
76.09
Outstanding at end of period
 
1,870,2801,702,590
$
66.4770.34
$
77.2981.10
Performance-Based Restricted Stock Units
Weighted Average
Grant Date Fair
Intrinsic Value
Shares/Units
Value Per Share
Per Share
Outstanding at beginning of period
674,753371,322
$
59.63
Granted
390,975
75.70
Vested
(392,001)
59.24
Forfeited
(7,724)
66.18
Outstanding at end of period
666,00369.62
$
62.39
$
77.2981.10
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTSSTATEMENT
S
(in millions, except share and per share data)
 
(unaudited
)
2426
Note 1112 – Redeemable Noncontrolling Interests
Some minority stockholders in certain of our subsidiaries have the right,
 
at certain times, to require us to acquire
their ownership interest in those entities at fair value.
 
Accounting Standards Codification Topic 480-10 is
applicable for noncontrolling interests where we are or may be required
 
to purchase all or a portion of the
outstanding interest in a consolidated subsidiary from the noncontrolling
 
interest holder under the terms of a put
option contained in contractual agreements.
 
The components of the change in the redeemable noncontrolling
interests for the six months ended June 25, 2022July 1, 2023 and the year ended December
 
25, 202131, 2022 are presented in the
following table:
 
June 25,July 1,
December 25,31,
2023
2022
2021
Balance, beginning of period
 
$
613576
$
328613
Decrease in redeemable noncontrolling interests due to acquisitions of
noncontrolling interests in subsidiaries
(11)(13)
(60)(31)
Increase in redeemable noncontrolling interests due to business
acquisitions
0240
1894
Net income attributable to redeemable noncontrolling interests
 
9
2321
Dividends declared
 
(11)(7)
(21)
Effect of foreign currency translation lossgain (loss) attributable to
redeemable noncontrolling interests
 
(7)1
(6)
Change in fair value of redeemable securities
 
(7)14
160(4)
Balance, end of period
 
$
586820
$
613576
Note 1213 – Comprehensive Income
Comprehensive income includes certain gains and losses that, under U.S.
 
GAAP,
 
are excluded from net income as
such amounts are recorded directly as an adjustment to stockholders’
 
equity.
 
The following table summarizes our Accumulated other comprehensive loss, net of
 
applicable taxes as of:
June 25,July 1,
December 25,31,
2023
2022
2021
Attributable to Redeemableredeemable noncontrolling interests:
Foreign currency translation adjustment
 
$
(38)(36)
$
(31)(37)
Attributable to noncontrolling interests:
Foreign currency translation adjustment
 
$
(1)
$
0(1)
Attributable to Henry Schein, Inc.:
Foreign currency translation adjustment
$
(234)(209)
$
(155)(236)
Unrealized gain (loss) from foreign currency hedging activities
 
71
(2)5
Pension adjustment loss
 
(14)(2)
(14)(2)
Accumulated other comprehensive loss
 
$
(241)(210)
$
(171)(233)
Total Accumulated
 
other comprehensive loss
 
$
(280)(247)
$
(202)(271)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTSSTATEMENT
S
(in millions, except share and per share data)
 
(unaudited
)
2527
The following table summarizes the components of comprehensive income, net
 
of applicable taxes as follows:
Three Months Ended
Six Months Ended
June 25,
June 26,July 1,
June 25,
July 1,
June 26,25,
2023
2022
20212023
2022
2021
Net income
$
148
$
167
$
164276
$
353
$
339
Foreign currency translation gain (loss)
3
(90)
3828
(87)
0
Tax effect
 
0-
0-
0-
0-
Foreign currency translation gain (loss)
3
(90)
3828
(87)
0
Unrealized gain (loss) from foreign currency hedging
 
activities
 
(2)
10
(2)(6)
12
2
Tax effect
 
1
(2)
02
(3)
(1)
Unrealized gain (loss) from foreign currency hedging
 
activities
 
(1)
8
(2)(4)
9
1
Pension adjustment gain
0
0
0
1
Tax effect
0
0
0
0
Pension adjustment gain
0
0
0
1
Comprehensive income
 
$
150
$
85
$
200300
$
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 gain (loss) during the six months ended
 
June 25, 2022July 1, 2023 and six months ended June 26,25,
20212022 was primarily impacted bydue to changes in foreign currency exchange rates of
 
of the Euro, British Pound, Brazilian Real,
Real,Canadian Dollar, Euro, Australian Dollar, Chinese Yuan,
and Canadian Dollar.
 
Israel Shekel.
The following table summarizes our total comprehensive income, net of
 
applicable taxes as follows:
Three Months Ended
Six Months Ended
June 25,
June 26,July 1,
June 25,
July 1,
June 26,25,
2023
2022
20212023
2022
2021
Comprehensive income attributable to
Henry Schein, Inc.
 
$
143
$
87
$
185284
$
271
$
323
Comprehensive income attributable to
noncontrolling interests
 
13
1
26
32
Comprehensive income (loss) attributable to
Redeemableredeemable noncontrolling interests
 
4
(3)
1410
2
15
Comprehensive income
 
$
150
$
85
$
200300
$
275
$
341
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTSSTATEMENT
S
(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 June 26, 2021, we recorded restructuring
costs of $
1
million and $
4
million,
respectively.
As of June 25, 2022 and December 25, 2021, the remaining
accrued balance for restructuring costs
was $
1
million and $
4
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.
28
Note 14
 
–
Earnings Per Share
Basic earnings per share is computed by dividing net income attributable
 
to Henry
Schein, Inc. by the weighted-
average number of common shares outstanding for the period.
 
Our diluted earnings per share is computed similarly
to basic earnings per share, except that it reflects the effect of common shares issuable
 
for presently unvested RSUs
restricted stock and RSUs and upon exercise of stock options using
the treasury stock method
in periods in which
they have a dilutive effect.
A reconciliation of shares used in calculating earnings per basic and
 
diluted share follows:
Three Months Ended
Six Months Ended
June 25,
June 26,July 1,
June 25,
July 1,
June 26,25,
2023
2022
20212023
2022
2021
Basic
 
130,905,899
137,350,488
140,358,428131,136,450
137,323,076
141,316,258
Effect of dilutive securities:
Stock options restricted stock and restricted stock units
 
967,275
1,518,576
1,298,4551,329,299
1,732,129
1,221,648
Diluted
 
131,873,174
138,869,064
141,656,883132,465,749
139,055,205
142,537,906
The number of antidilutive securities that were excluded from the calculation
 
of diluted weighted average common
shares outstanding are as follows:
Three Months Ended
Six Months Ended
June 25,
June 26,July 1,
June 25,
July 1,
June 26,25,
2023
2022
20212023
2022
2021
Stock options
426,002
423,786
786,691427,355
250,226
501,648
Restricted stock units
19,405
51,453
2,62119,405
226,203
1,653
Total anti-dilutive
 
securities excluded from EPS
computation
445,407
475,239
789,312446,760
476,429
503,301
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
July 1,
June 25,
June 26,2023
2022
2021
Interest
$
1732
$
1417
Income taxes
165118
134165
During the six months ended July 1, 2023 and June 25, 2022, and June 26, 2021, we had a
 
$
12(6)
 
million and $
212
 
million of non-cash net
unrealized gains (losses) related to foreign currency hedging activities, respectively.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENT
S
(in millions, except share and per share data)
 
(unaudited
)
29
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 June 25, 2022,July 1, 2023, we recorded $
8
 
million and $
16
 
million, respectively, in connection with costs
related to this royalty agreement.
 
During the three and six months ended June 26, 2021,25, 2022, we recorded
 
$
8
 
million
and $
16
 
million, respectively, in connection with costs related to this royalty agreement.
 
As of June 25, 2022July 1, 2023 and
December 25, 2021,
31, 2022, Henry Schein One, LLC had a net (payable) receivablepayable balance due
 
(to) fromto Internet Brands
of $
(6)10
 
million and
$
9
 
million, respectively, comprised of amounts related to results of operations and the royalty agreement.
The
agreement.components of this payable are recorded within accrued expenses: other, within our condensed consolidated
balance sheets.
As of July 1, 2023 Henry Schein One, LLC had declared
a cash distribution of $
27
million to
Internet Brands, which was paid subsequent to July 1, 2023.
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 June 25, 2022,July 1, 2023, we recorded
 
net sales of $
1611
 
million and $
3223
million,
respectively, to such entities.
 
During the three and six months ended June 26, 2021,25, 2022, we recorded net sales
 
sales
of $
1811
million and $
3323
 
million, respectively, to such entities.
 
During the three and six months ended June 25, 2022,July 1, 2023, we
we purchased $
53
 
million and $
105
 
million, respectively, from such entities.
 
During the three and six months ended June
June 26, 2021,25, 2022, we purchased $
53
 
million and $
96
 
million, respectively, from such entities.
 
At June 25,July 1, 2023 and December
31, 2022, and
December 25, 2021, in the aggregate we had an aggregate of $
4033
 
million and $
4536
 
million, respectively, due from our equity affiliates, and $
95
million and $
96
 
million, respectively, due to our equity affiliates, respectively.affiliates.
Certain of our facilities related to our acquisitions are leased from employees
 
and minority shareholders.
 
These
leases are classified as operating leases and have a remaining lease term
 
ranging from less than
6 monthsone year
 
to
10 years14
.years.
 
As of
June 25, 2022, July 1, 2023, current and non-current liabilities associated with related
 
related party operating leases were $
46
million and
$
1725
 
million, respectively.
 
Related party leases represented
5.47.6
% and
6.19.0
% of the total current and non-currentnon-
current operating lease liabilities.
 
2830
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
 
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
 
Coronavirus Disease 2019 (COVID-19)
on us, our results of operations, liquidity and financial condition (including
 
any estimates of the impact on these
items), the rate and consistency with which dental and other practices
 
resume or maintain normal operations in the
United States and internationally, expectations regarding personal protective equipment (“PPE”)PPE products and COVID-19
related product sales and
inventory levels, whether additional resurgences or variants
of the virus will adversely
impact the resumption of
normal operations, whether vaccine mandates will
adversely impact us (by disrupting our
workforce and/or business), whether supply chain disruptions will adversely impact
 
impact our business, the impact of integration
and restructuring programs as well as of any future acquisitions, general
economic conditions including exchange
rates, inflation and recession, and more generally current expectations
 
current expectations regarding
performance in current and future
periods.
 
Forward looking statements also include the (i) our ability to
have
continued access to a variety of
COVID-19 test types and expectations regarding COVID-19
 
COVID-19 test sales, demand and
inventory levels as well as the efficacy or relative efficacy of the test results given that the test
efficacy has not
been, or will not have been, independently verified under normal FDA procedures
and (ii)
potential for us to
distribute the COVID-19 vaccines and ancillary supplies.
Risk factors and uncertainties that could cause actual results to differ materially from current
 
current and historical results
include, but are not limited to: risks associated with COVID-19
 
and any variants thereof, as well as other disease
outbreaks, epidemics, pandemics, or similar wide-spread public health concerns
 
and other natural disasters; our
dependence on third parties for the manufacture and supply of our products;
 
our ability to develop or acquire and
maintain and protect new products (particularly technology products) and
 
technologies that achieve market
acceptance with acceptable margins; transitional challenges associated with acquisitions,
 
dispositions and joint
ventures, including the failure to achieve anticipated synergies/benefits; legal, regulatory, compliance,
cybersecurity, financial
and tax risks associated with
acquisitions, dispositions and joint ventures; certain provisions
in our governing
documents that may discourage
third-party acquisitions
of us; adverse changes in supplier rebates
or other purchasing incentives; risks related to the sale of corporate brand
products; effects of a highly competitive (including,
(including, without
limitation, competition from third-
partythird-party online commerce
sites) and consolidating market; the
repeal or judicial
prohibition on implementation of the
Affordable Care Act; changes in the health
care industry;
risks from expansion of
customer purchasing power and multi-tiered
multi-tiered costing structures; increases in shipping costs
for our products
or other service issues with our third-
partythird-party shippers; general
global and domestic macro-economic
and political
conditions, including inflation, deflation, recession, fluctuations
fluctuations in energy pricing and the value of the
U.S. dollar as compared to foreign currencies,
and changes to other economic
indicators, international trade
agreements, potential trade barriers and
terrorism; failure to comply with existing
and
future regulatory
requirements; risks associated with the EU Medical
Device Regulation; failure
to comply with
laws and regulations
relating to health care fraud or other laws and regulations;
failure to comply with
laws and
regulations relating to
the collection, storage and processing of sensitive personal information
 
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
matters; risks associated
with customs policies or legislative import restrictions; cyberattacks
 
cyberattacks or other privacy or
data security breaches; risks
associated with our global operations;
our dependence on our senior management,
employee hiring and retention,
and our relationships with customers,
suppliers and manufacturers;
and disruptions
in financial markets.
 
The order
in which these factors appear should not be construed
to indicate their
relative
importance or priority.
2931
We caution that these factors may not be exhaustive and that many of these factors are beyond our ability to control
or predict.
 
Accordingly, any forward-looking statements contained herein should not be relied upon as a prediction
of actual results.
 
We undertake no duty and have no obligation to update forward-looking statements except as
required by law.
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 2020.
During the year ended
December 25, 2021, patient traffic levels returned to levels approaching pre-pandemic levels.31, 2022 we experienced a decrease
 
Demand for dental
products and certain medical products throughout 2021 was driven
byin the sales of PPE and COVID-19 test kits and other
COVID-19 related products.as compared to the comparable prior-year period.
 
During the three and six months ended March 26, 2022, with the exception of
COVID-19 testJuly 1, 2023, we
kits, we experienced a decrease in the sales volume of PPE and COVID-19
related products.
During the three
months ended June 25, 2022,
we continued to experience a decrease in the sales volume of PPE and COVID-19
 
test kits compared with the same period in
the prior year and COVID-19
related products and additionally we began to experience declining demand
for COVID-19 test kits.
We expect
continued volatility further decreases in sales of test kits for in 2023 compared to
the remainderprior year.
While the U.S. economy has recently experienced inflationary
pressures and strengthening of the year.U.S. dollar, their
During the three months ended June 25, 2022,
as a result of an increase in COVID-19 variants, we experienced a
modest decline in dental patient traffic which we 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 again once cases of COVID-19 moderate.
In contrastimpacts have not been material to our dental business, during the three monthsresults of operations.
The impact from inflation, including manufacturer
ended June 25, 2022, our medical business benefited from strong salesprice increases excluding PPE products, was slightly more pronounced
 
in point-of-care diagnostic tests includingEurope.
Though inflation impacts both
flu test kits, as well as generic pharmaceuticalsour revenues and equipment.costs, the depth and breadth of our product portfolio
often allows us to offer lower-cost national
brand solutions or corporate brand alternatives to our more price-sensitive
customers who are unable to absorb
price increases, thus positioning us to protect our gross profit.
Our condensed consolidated financial statements reflect estimates and
 
assumptions made by us that affect, among
other things, our goodwill, long-lived asset and definite-lived intangible
 
asset valuation; inventory valuation; equity
investment valuation; assessment of the annual effective tax rate; valuation of
 
deferred income taxes and income
tax contingencies; the allowance for doubtful accounts; hedging activity;
 
supplier rebates; measurement of
compensation cost for certain share-based performance awards and cash bonus
 
plans; and pension plan
assumptions.
Due to the significant uncertainty surrounding the future impact
of COVID-19, our judgments
regarding estimates and impairments could change in the future.
There is an ongoing risk that the 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.
3032
Executive-Level Overview
Henry Schein, Inc. is a solutions company for health care professionals powered
 
by a network of people and
technology.
 
We
believe we are the world’s
largest provider of health care products and services primarily to office-
based dental and medical practitioners, as well as alternate sites of care.
 
We
serve more than one million customers
worldwide including dental practitioners, laboratories, physician practices, and
 
ambulatory surgery centers, as well
as government, institutional health care clinics and other alternate care
clinics.
 
We
believe that we have a strong
brand identity due to our more than 9091 years of experience distributing health
 
care products.
We are headquartered in Melville, New York,
 
employ more than 22,00023,000 people (of which approximately 10,600
11,500 are
based outside of the United States) and have operations or affiliates in 3233 countries
 
and territories.
 
Our broad
global footprint has evolved over time through our organic success as well as through
 
through contribution from strategic
acquisitions.
We
have established strategically located distribution centers around
the world to enable us to better serve our
customers and increase our operating efficiency.
 
This infrastructure, together with broad product and service
offerings at competitive prices, and a strong commitment to customer service, enables
 
enables us to be a single source of
supply for our customers’ needs.
While our primary go-to-market strategy is in our capacity as a distributor, we also market and sell our own
corporate brand portfolio of cost-effective, high-quality consumable merchandise products,
manufacture certain dental
dental specialty products and solutions in the areas of implants, orthodontics and endodontics,
 
and endodontics.repackage/relabel prescription
drugs and/or devices.
 
We
have achieved scale in
these global businesses primarily
through acquisitions, as
manufacturers
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, andgovernment
 
and other
institutions.
 
Our
global medical businesses serve office-based medical practitioners,physician offices, urgent care centers, ambulatory care sites,
 
surgeryemergency
medical technicians, dialysis centers, home health, federal and state governments
and large enterprises, such as
group practices and integrated delivery networks, among other alternate-careproviders
across a wide range of specialties.
settings and other institutions.
The health care distribution reportable segment, aggregatescombining our global dental and
 
dental and medical operating segments.
Thissegments,
segment distributes consumable products, small equipment, laboratory products,
large equipment, equipment
repair services,
services, branded and generic pharmaceuticals, vaccines, surgical products, dental specialty
 
specialty products (including implant,
implant, orthodontic and endodontic products), diagnostic tests, infection-control
products,
 
PPE products and vitamins.
 
Our global technology and value-added services business provides software, technology
 
technology and other value-added
services to health care practitioners.
 
Our technology business offerings include practice management software
systems for dental and medical practitioners.
 
Our value-added practice solutions include practice consultancy,
education, revenue cycle management and financial services on a non-recourse
 
basis, e-services, practice
technology, network and hardware services, as well as consulting, and continuing education services for
practitioners.
A key element to grow closer to our customers is our One Schein initiative, which
 
initiative, which is a unified go-to-market
approach that enables practitioners to work synergistically with our supply chain,
 
equipment sales and service and
other value-added services, allowing our customers to leverage the
 
the combined value that we offer through a single
program.
 
Specifically, One Schein provides customers with streamlined access to our comprehensive offering of
national brand products, our private labelcorporate brand products and proprietary specialty
 
products and solutions (including
implant, orthodontic and endodontic products).
 
In addition, customers have access to a wide range of services,
including software and other value-added services.
3133
Industry Overview
In recent years, the health care industry has increasingly focused on cost containment.
 
This trend has benefited
distributors capable of providing a broad array of products and services at low
 
low prices.
 
It also has accelerated the
growth of HMOs, group practices, other managed care accounts and collective buying
 
buying groups, which, in addition to
their emphasis on obtaining products at competitive prices, tend to favor distributors
 
favor distributors capable of providing
specialized management information support.
 
We
believe that the trend towards cost containment has the potential
to favorably affect demand for technology solutions, including software, which
 
can enhance the efficiency and
facilitation of practice management.
Our operating results in recent years have been significantly affected by strategies
 
and transactions that we
undertook to expand our business, domestically and internationally, in part to address significant changes
in the
health care industry, including consolidation of health care distribution companies, health care reform, trends
toward managed care, cuts in Medicare and collective purchasing arrangements.
Our current and future results have been and could be impacted by
the COVID-19 pandemic, the current economic
environment and continued economic and public health uncertainty.
Since the onset of the COVID-19 pandemic in
early 2020, we have been carefully monitoring its impact on our global
operations and have taken appropriate steps
to minimize the risk to our employees.
We have seen and expect to continue to see changes in demand trends for
some of our products and services, supply chain challenges and labor
challenges, as rates of infection fluctuate, new
strains or variants of COVID-19 emerge and spread, vaccine uptake and mandates increase
and change,
governments adapt their approaches to combatting the virus (including,
without limitation, vaccine mandates), and
local conditions change across geographies.
For example, vaccine mandates affecting our workforce, whether
imposed through government regulations or contracts with governmental authorities
or other customers, could
potentially cause staffing shortages if employees choose not to comply as well as
other consequences to our
business or operations, and managing and tracking vaccination status and
ongoing testing for exempt employees
could potentially increase our costs, as could addressing inconsistent COVID-19
vaccination mandates.
As a result,
we expect to see continued volatility through at least the duration of the pandemic.
Industry Consolidation
The health care products distribution industry, as it relates to office-based health care practitioners, is fragmented
and diverse.
 
The industry ranges from sole practitioners working out of
 
of relatively small offices to group practices
or service organizations ranging in size from a few practitioners to a large number of practitioners who
have
combined or otherwise associated their practices.
Due in part to the inability of office-based health care practitioners to store and manage
 
large quantities of supplies
in their offices, the distribution of health care supplies and small equipment to office-based health
 
care practitioners
has been characterized by frequent, small quantity orders, and a need for rapid,
 
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
 
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 regardapproach to acquisitions and joint ventures has been to expand
our role as
a provider of products and services
services to the health care industry.
 
This trend has resulted in our expansion into service areas that complement
 
our existing
existing operations and provide opportunities for us to develop synergies with, and
thus strengthen, the acquired
businesses.
As industry consolidation continues, we believe that we are positioned to
 
to capitalize on this trend, as we believe we
have the ability to support increased sales through our existing infrastructure, although
 
there can be no assurances
that we will be able to successfully accomplish this.
 
We
also have invested in expanding our sales/marketing
infrastructure to include a focus on building relationships with decision
 
makers who do not reside in the office-
based practitioner setting.
As the health care industry continues to change, we continually evaluate possible
 
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
34
consummated, we would incur merger and/or acquisition-related costs, and there
 
there can be no assurance that the
integration efforts associated with any such transaction would be successful.
Aging Population and Other Market Influences
The health care products distribution industry continues to experience growth
 
due to the aging population,
increased health care awareness, the proliferation of medical technology
 
and testing, new pharmacology treatments,
and expanded third-party insurance coverage, partially offset by the effects of unemployment on insurance
coverage.
 
In addition, the physician market continues to benefit from
 
the shift of procedures and diagnostic testing
from acute care settings to alternate-care sites, particularly physicians’
 
offices.
According to the U.S. Census Bureau’s International Database, between 2023 and 2033, the 45 and older
population is expected to grow by approximately 11%.
Between 2023 and 2043, this age group is expected to grow
by approximately 21%.
This compares with expected total U.S. population growth
rates of approximately 6%
between 2023 and 2033 and approximately 11% between 2023 and 2043.
According to the U.S. Census Bureau’s International Database, in 20222023 there are approximately seven million
Americans aged 85 years or older, the segment of the population most in need of long-term care
 
and elder-care
services.
 
By the year 2050, that number is projected to nearly triple to approximately
 
19 million.
 
The population
aged 65 to 84 years is projected to increase by approximately 27%23% during
 
the same period.
As a result of these market dynamics, annual expenditures for health
 
care services continue to increase in the
United States.
 
We believe that demand for our products and services will grow while continuing to be impacted by
current and future operating, economic, and industry conditions.
 
The Centers for Medicare and Medicaid Services,
or CMS, published “National Health Expenditure Data” indicating
 
that total national health care spending reached
approximately $4.1$4.3 trillion in 2020,2021, or 19.7%18.3% of the nation’s gross domestic product, the benchmark measure
 
measure for
annual production of goods and services in the United
States.
 
Health care spending is projected to reach
approximately $6.2$7.2 trillion in 2028, approximately 19.7%by 2031, or 19.6% of the
nation’s projected gross domestic product.
The
latest projections begin after the latest historical year (2020) and go through
2030.
Government
Certain of our businesses involve the distribution, manufacturing, importation,
 
importation, exportation, marketing and sale of,
and/or third party payment for, pharmaceuticals and/or medical devices, and in this regard, we are subject
 
are subject to
extensive local, state, federal and foreign governmental laws and regulations,
 
including as applicable to our
wholesale distribution of pharmaceuticals and medical devices, manufacturing
 
activities, and as part of our
specialty home medical supply business that distributes and sells medical equipment
 
and supplies directly to
patients.
 
The federal governmentFederal, state and statecertain foreign governments have also increased enforcement
 
enforcement activity in the health care
sector, particularly in areas of fraud and abuse, anti-bribery and corruption, controlled substances handling,
 
medical
device regulations and data privacy and security standards.
Certain of our businesses are subject to various additional federal, state,
local and foreign laws and regulations,
including with respect to the sale, transportation, storage, handling and
disposal of hazardous or potentially
hazardous substances, and safe working conditions.
In addition, certain of our businesses must operate in
compliance with
a variety of burdensome and complex billing
and record-keeping
requirements in order to
substantiate claims for payment under
federal, state and commercial healthcare
healthcare reimbursement programs.
 
One of
these businesses was recently suspended in October 2021 by CMS from receiving
 
receiving
payments from Medicare, although it is was
permitted to continue to perform
and bill for Medicare services.
 
TheSuch suspension was terminated on September 30,
2022.
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.
In addition, activities to control medical costs,
including laws and regulations lowering reimbursement rates for pharmaceuticals,
medical devices, medical
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3335
amounts billed are being deposited in an escrow account pending resolution
of an audit.
We have not recognized
revenue for these services and have currently deferred $13 million in revenue
(including $8 million deferred during
the six months ended June 25, 2022 and $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
devicessupplies, 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
 
our financial performance.
Our businesses are generally subject to numerous laws and regulations that could
 
impact our financial performance,
and failure to comply with such laws or regulations could have a
 
material adverse 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
 
Annual Report on Form 10-K for the
fiscal year ended December 25, 2021,31, 2022, filed with the SEC on February
15, 2022. 21, 2023.
Results of Operations
The following table summarizestables summarize the significant components of our operating
 
results for the three and six months
ended July 1, 2023 and June 25, 2022 and June 26, 2021 and cash flows for the six months ended
 
months endedJuly 1, 2023 and June 25, 2022 and June 26, 2021:2022:
Three Months Ended
Six Months Ended
June 25,
June 26,July 1,
June 25,
July 1,
June 26,25,
2023
2022
20212023
2022
2021
Operating results:
Net sales
 
$
3,100
$
3,030
$
2,9676,160
$
6,209
$
5,892
Cost of sales
 
2,125
2,085
2,0764,219
4,291
4,110
Gross profit
 
975
945
8911,941
1,918
1,782
Operating expenses:
Selling, general and administrative
 
707
680
6351,424
1,362
1,249
Depreciation and amortization
4549
45
9293
8992
Restructuring costs
18
-
148
-
4
Operating income
$
201
$
220
$
210376
$
464
$
440
Other expense, net
 
$
(15)
$
(6)
$
(5)(27)
$
(11)
$
(9)
Net income
148
167
164276
353
339
Net income attributable to Henry Schein, Inc.
140
160
156261
341
322
Six Months Ended
July 1,
June 25,
June 26,2023
2022
2021
Cash flows:
 
Net cash provided by operating activities
$
250301
$
222250
Net cash used in investing activities
(59)(340)
(341)(59)
Net cash used inprovided by (used in) financing activities
59
(195)
(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 June 26, 2021, we recorded
restructuring costs of $1 million and $4 million,
respectively.
As of June 25, 2022 and December 25, 2021, the remaining
accrued balance for restructuring costs
was $1 million and $4 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 revised our previous expectations of
completion and now expect this initiative to record restructuring chargesextend through 2024.
We are currently unable in good faith to make a
2022 and 2023, howeverdetermination of an estimate of the amount or range of these charges has not yet beenamounts expected to
 
determined.be incurred in connection with these
activities, both with respect to each major type of cost associated therewith
 
Anyand with respect to the total cost, or an
estimate of the amount or range of amounts that will result in future
cash expenditures.
During the three and six months ended July 1, 2023, we recorded restructuring
costs of $18 and $48 million,
charges are expectedrespectively.
The restructuring costs for these periods primarily related to include
severance pay and facility-relatedemployee-related costs,
accelerated amortization of right-of-use lease assets and fixed assets, and other
lease exit costs.
 
The expense savings realizedIncluded in
from this plan are expectedrestructuring costs for the six months ended July 1, 2023 were
immaterial amounts related to mainly affect 2023the disposal of an
unprofitable U.S. business initiated during 2022 and beyond.completed during
the first quarter of 2023.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3536
Three Months Ended June 25, 2022July 1, 2023 Compared to Three Months Ended June 26, 202125, 2022
Net Sales
Net sales were as follows:
June 25,July 1,
% of
June 26,25,
% of
Increase / (Decrease)
20222023
Total
20212022
Total
$
%
Health care distribution
(1)
Dental
 
$
1,957
63.1
%
$
1,853
61.1
%
$
1,912104
64.4
%
$
(59)
(3.1)5.6
%
Medical
 
950
30.7
996
32.9
902(46)
30.4
94
10.3(4.6)
 
Total health care distribution
 
2,907
93.8
2,849
94.0
2,81458
94.8
35
1.22.1
Technology and value-added services
(2)
193
6.2
181
6.0
15312
5.2
28
18.16.7
Total
 
$
3,100
100.0
%
$
3,030
100.0
%
$
2,96770
100.02.3
%
$The components of our sales growth were as follows:
63Total Local
Currency
Growth
Foreign
Exchange
Impact
Total Sales
Growth
Local Currency Growth
Local Internal
Growth
Acquisition
Growth
Health care distribution
(1)
Dental Merchandise
0.7
%
4.8
%
5.5
%
(0.6)
%
4.9
%
Dental Equipment
6.4
2.0
8.4
(0.4)
8.0
Total Dental
2.0
4.2
6.2
(0.6)
5.6
Medical
(5.3)
0.8
(4.5)
(0.1)
(4.6)
Total Health Care Distribution
(0.6)
3.0
2.4
(0.3)
2.1
Technology and value-added services
(2)
5.5
1.5
7.0
(0.3)
6.7
Total
(0.2)
%
2.9
%
2.7
%
(0.4)
%
2.3
%
Note: Percentages for Net Sales; Gross Profit; Selling, General and Administrative; Other Expense, Net; and Income Taxes are based on
actual values and may not recalculate due to rounding.
(1)
Consists of consumable products, small equipment, laboratory products, large equipment, equipment repair services, branded and
generic pharmaceuticals, vaccines, surgical products, dental specialty products (including implant, orthodontic and endodontic
products), diagnostic tests, infection-control products, PPE products and vitamins.
(2)
Consists of practice management software and other value-added products, which are distributed primarily to health care providers,
practice consultancy, education, revenue cycle management and financial services on a non-recourse basis, e-services, continuing
education services for practitioners, consulting and other services.
The 2.1% increase inGlobal Sales
Global net sales includes an increasefor the three months ended July 1, 2023 increased 2.3%.
The components of 4.5%our sales growth are
presented in local currencythe table above.
 
sales (2.4% increase in internally
generated sales and 2.1% growth from acquisitions) partially offset by a decrease
of 2.4% related to foreign
currency exchange.
We estimate that salesSales of PPE products and COVID-19 related productstest kits for the three months
ended July 1,
2023 were approximately $259
$164 million, a decrease of 28.8%approximately 36.9%
 
versus the prior year.
Excluding PPE and COVID-19 related products, the estimated
increase in internally generated local currency sales was 6.7%.
The 3.1% decrease in dental net sales includes an increase of 0.4% in local
currency sales (0.3% decrease in
internally generated sales and 0.7% growth from acquisitions) offset by a decrease
of 3.5% related to foreign
currency exchange.
The 0.4% increase in local currency sales was attributable to a decrease in dental
consumable
merchandise sales of 1.3% (2.2% decrease in internally generated
sales and 0.9% growth from acquisitions) and an
increase in dental equipment and service sales of 7.0%,
all of which was attributable to growth in internally
generated sales.
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 related to
2022.
 
an increase in patient
appointment cancellations compared to the comparable prior-year period as well as
a decrease inExcluding 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 our dental business recorded sales of approximately
$114 million of PPEproducts and COVID-19 related products, an estimated decrease of 37.2%
versustest kits, the prior year.
Excluding PPE and COVID-19 related products, the estimated increase in
 
internally generated local currency dentalsales
sales was 3.5%3.3%.
The 10.3% increase in medicalDental
Dental net sales includes an increasefor the three months ended July 1, 2023 increased 5.6%.
The components of 10.6%our sales growth are
presented in the table above.
 
Our sales growth in local currency sales (6.7% increase in
internally generated sales and 3.9% growth from acquisitions), partially offset byfor dental merchandise was primarily
 
attributable
to increased
patient traffic.
Our sales growth in local currency for dental equipment was primarily
attributable to
growth in North America for traditional equipment.
Sales of PPE products for the six months ended July 1, 2023
were approximately $89 million, a decrease of 0.3% related to
foreign currency exchange.approximately 23.0% versus
 
We estimate that our medical business recorded sales of approximately $145 million of
PPE and COVID-19 related products for the three months ended June 25, 2022,2022.
 
an estimated decrease of 20.4%
compared toExcluding PPE products, the prior year.
Excluding sales of PPE and COVID-19 related products,
the estimated increase in
internally generated local currency medical sales was 13.6%.
The 18.1% increase in technology and value-added services net sales includes
an increase of 19.6%
in local
currency sales (10.8% increase in internally generated sales and 8.8%local currency
 
growth from acquisitions) partially offset by
a decrease of 1.5% related to foreign currency exchange.
During the quarter ended June 25, 2022, the trend for
transactional softwaredental sales improved compared to the prior year, 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.was 3.7%.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3637
Medical
Medical net sales for the three months ended July 1, 2023 decreased 4.6%.
The components of this decrease are
presented in the table above.
The local currency decrease in medical sales is primarily attributable
to lower sales of
PPE products and COVID-19 test kits and other point-of-care diagnostic products.
Sales of PPE products and
COVID-19 test kits were approximately $75 million for the three
months ended July 1, 2023, a decrease of
approximately 47.9% compared to the three months ended June 25, 2022.
Excluding PPE products and COVID-19
test kits, the increase in internally generated local currency medical
sales was 2.0%.
Technology and value-added services
Technology and value-added services net sales for the three months ended July 1, 2023 increased 6.7%.
The
components of our sales growth are presented in the table above.
During the three months ended July 1, 2023, the
trend for sales of practice management software improved as we increased
the number of cloud-based users.
We
also experienced increased patient traffic generating increased demand for our
revenue cycle management
solutions.
The increase in sales during the quarter ended July 1, 2023
was partially offset by the expiration, during
the third quarter of 2022, of a modestly profitable government contract
in one of our value-added services
businesses.
Gross Profit
Gross profit and gross margin percentages by segment and in total were as follows:
July 1,
Gross
June 25,
Gross
June 26,Increase
Gross
Increase
20222023
Margin %
20212022
Margin %
$
%
Health care distribution
 
$
846
29.1
%
$
826
29.0
%
$
78620
27.9
%
$
40
5.22.4
%
Technology and value-added services
129
66.8
119
65.9
10510
68.9
14
13.08.1
Total
 
$
975
31.4
$
945
31.2
$
89130
30.0
$
54
6.23.1
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 labelcorporate brand products achieve
 
gross profit margins that are
higher than average total gross profit margins of all products.
 
With respect to customer mix, sales to our large-
group customers are typically completed at lower gross margins due to the higher
 
volumes sold as opposed to the
gross margin on sales to office-based practitioners, who normally purchase lower volumes atvolumes.
 
greater frequencies.
Health care distribution gross profit increased $40 million, or 5.2%, primarily
due to the increase
in net sales discussed above, including
discussed above.
The overall increase in our health care distribution$28 million of gross profit
includes a $34 million increase in
the from acquisitions and gross margin rates due to productexpansion,
mainly as a result of a favorable impact
of sales mix and supplier rebates and $18 million additionalof higher-margin products,
 
gross profit from
acquisitions, partially offset by a decreasereduction in sales of $12 million from internally generatedPPE products and COVID-19
 
operations.test
kits.
Technology and value-added services gross profit increased $14 million, or 13.0%, due to an $11 million increaseas a result of a higher gross profit from internally
in internally generated sales and $5 million additional gross profit of $3 million from acquisitions, as well as an
 
partially offset by a decrease
of $2 million fromincrease in gross margin rates
primarily due to product mix.
Technologymix and value-added services gross profit
margin decreased to 65.9% from 68.9% primarily due to our continued investment
increases in product development and
customer service.productivity.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3738
Selling, General and AdministrativeOperating Expenses
Selling,Operating expenses (consisting of selling, general and administrative expensesexpenses;
depreciation and amortization; and
restructuring costs) by segment and in
total were as follows:
% of
% of
July 1,
Respective
June 25,
Respective
June 26,
Respective
Increase
20222023
Net Sales
20212022
Net Sales
$
%
Health care distribution
 
$
680
23.4
%
$
637
22.4
%
$
60443
21.4
%
$
33
5.66.7
%
Technology and value-added services
 
94
49.0
88
48.5
776
50.1
11
14.47.7
Total
 
$
774
25.0
$
725
23.9
$
68149
22.96.8
The net increase in operating expenses is attributable to the following:
Restructuring Costs
Operating Costs
Acquisitions
Total
Health care distribution
$
4416
6.6$
Selling, general4
$
23
$
43
Technology and administrative expenses (includingvalue-added services
2
2
2
6
Total
$
18
$
6
$
25
$
49
The restructuring costs are primarily related to severance and employee-related
 
incosts, accelerated amortization of
right-of-use lease assets and fixed assets, and other lease exit costs.
During the three monthsquarter ended June 26,July 1, 2023, our
2021) increased $44 million, or 6.6%.
The $33 million increase in selling, general and administrativeoperating expenses withinwere favorably impacted by the recognition of
 
our health care distribution segment
was attributable to an increasea remeasurement gain of $18 million following
an acquisition of operating costs and an increasea controlling interest of a previously held equity
 
of $17 million of additional costs
from acquired companies, partially offset by a decrease of $1 million in restructuring costs.investment.
 
The $11 million
increase in selling, general and administrative expenses within our technology
and value-added services segment
was attributable to an increase of $6 million of operating costs and an
increase of $5 million of additional costs
from acquired companies.
As a component of total selling, general and administrative expenses,
selling expenses increased $22 million, or
5.4% to $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 14.3%
from 13.8%.
As a component of total selling, general and administrative expenses, general
and administrative expenses
increased $22 million, or 8.5% to $292 million primarily due to an increase
includes increases in payroll and payroll related costs, and
travel and convention expenses. facility related costs
 
As a percentagein both of net sales, general our reportable segments
and administrativeincreased acquisition expenses
increased to
9.6% from 9.1%. in our healthcare distribution segment.
Other Expense, Net
Other expense, net was as follows:
July 1,
June 25,
June 26,
Variance
20222023
20212022
$
%
Interest income
 
$
3
$
12
$
21
120.854.2
%
Interest expense
 
(9)(19)
(7)(8)
(2)(11)
(30.4)(150.3)
Other, net
 
1
-
1
(1)
(90.3)n/a
Other expense, net
 
$
(15)
$
(6)
$
(5)(9)
$
(1)
(13.3)(178.9)
Interest income increased $2 million and interest expense increased
$2 million primarily due to increased interest rates.
Interest expense increased primarily due to
increased borrowings and increased interest rates.
Income Taxes
For the three months ended June 25, 2022July 1, 2023 our effective tax rate was 23.8%22.0% compared
 
to 23.4%
23.8% for the prior year
period.
 
The difference between our effective tax rates and the federal statutory tax rate for
the three months ended
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 Juneprimarily relates
 
26, 2021, was primarily due to
state and
foreign income taxes and interest expense and tax charges and credits associated with
legal entity
reorganizations.expense.
 
 
 
 
 
 
 
 
 
 
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4039
Six Months Ended July 1, 2023 Compared to Six Months Ended June 25, 2022
Net Sales
Net sales were as follows:
July 1,
% of
June 25,
% of
Increase/(Decrease)
2023
Total
2022
Total
$
%
Health care distribution
(1)
Dental
$
3,855
62.6
%
$
3,681
59.3
%
$
174
4.7
%
Medical
1,921
31.2
2,168
34.9
(247)
(11.4)
Total health care distribution
5,776
93.8
5,849
94.2
(73)
(1.2)
Technology and value-added services
(2)
384
6.2
360
5.8
24
6.7
Total
$
6,160
100.0
%
$
6,209
100.0
%
$
(49)
(0.8)
The components of our sales growth were as follows:
Local Currency Growth
Local Internal
Growth
Acquisition
Growth
Total Local
Currency
Growth
Foreign
Exchange
Impact
Total Sales
Growth
Health care distribution
(1)
Dental Merchandise
2.4
%
3.6
%
6.0
%
(1.5)
%
4.5
%
Dental Equipment
5.2
1.7
6.9
(1.5)
5.4
Total Dental
3.0
3.2
6.2
(1.5)
4.7
Medical
(11.7)
0.4
(11.3)
(0.1)
(11.4)
Total Health Care Distribution
(2.5)
2.2
(0.3)
(0.9)
(1.2)
Technology and value-added services
(2)
6.0
1.5
7.5
(0.8)
6.7
Total
(2.0)
%
2.2
%
0.2
%
(1.0)
%
(0.8)
%
Note: Percentages for Net Sales; Gross Profit; Selling, General and AdministrativeAdministrative; Other Expense, Net; and Income Taxes are based on
Selling, generalactual values and administrative expensesmay not recalculate due to rounding.
Global Sales
Global net sales for the six months ended July 1, 2023 decreased 0.8%.
The components of this decrease are
presented in the table above.
Sales of PPE products and COVID-19 test kits for the six months ended
July 1, 2023
were approximately $365 million, a decrease of approximately 51.2% versus
the six months ended June 25, 2022.
Excluding PPE products and COVID-19 test kits, the increase in
internally generated local currency sales was
4.8%.
Dental
Dental net sales for the six months ended July 1, 2023 increased 4.7%.
The components of our sales growth are
presented in the table above.
Our sales growth in local currency for dental merchandise was primarily
attributable
to increased
patient traffic along with some price increases.
Our sales growth in local currency for dental
equipment was primarily attributable to growth in traditional equipment
sales in North America.
Sales of PPE
products for the six months ended July 1, 2023 were approximately $181
million, a decrease of approximately
30.0% versus the six months ended June 25, 2022.
Excluding PPE products, the increase in internally generated
local currency dental sales was 5.5%.
40
Medical
Medical net sales for the six months ended July 1, 2023 decreased 11.4%.
The components of this decrease are
presented in the table above.
The local currency decrease in medical sales is primarily attributable
to lower sales of
PPE products and COVID-19 test kits and other point-of-care diagnostic products.
Sales of PPE products and
COVID-19 test kits were approximately $184 million for the six months
ended July 1, 2023, a decrease of
approximately 62.3% compared to the six months ended June 25, 2022.
Excluding PPE products and COVID-19
test kits, the increase in internally generated local currency medical
sales was 3.1%.
Technology and value-added services
Technology and value-added services net sales for the six months ended July 1, 2023 increased 6.7%.
The
components of our sales growth are presented in the table above.
During the six months ended July 1, 2023, the
trend for sales of practice management software improved as we increased
the number of cloud-based users.
We
also experienced increased patient traffic generating increased demand for
our revenue cycle management
solutions.
The increase in sales during the quarter ended July 1, 2023
was partially offset by the expiration, during
the third quarter of 2022, of a modestly profitable government contract
in one of our value-added services
businesses.
Gross Profit
Gross profit and gross margin percentages by segment and in total were as follows:
July 1,
Gross
June 25,
Gross
Increase
2023
Margin %
2022
Margin %
$
%
Health care distribution
 
$
1,683
29.1
%
$
1,683
28.8
%
$
-
-
%
Technology and value-added services
258
67.1
235
65.4
23
9.5
Total
$
1,941
31.5
$
1,918
30.9
$
23
1.2
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 research and development.
Within our health care distribution segment, gross profit margins may vary from one period to the next.
Changes in
the mix of products sold as well as changes in our customer mix have been
the most significant drivers affecting
our gross profit margin.
For example, sales of our corporate brand products achieve
gross profit margins that are
higher than average total gross profit margins of all products.
With respect to customer mix, sales to our large-
group customers are typically completed at lower gross margins due to the higher
volumes sold as opposed to the
gross margin on sales to office-based practitioners, who normally purchase lower volumes.
Health care distribution gross profit for the six months ended July 1, 2023
was unchanged compared to the prior-
year period due to the decrease in sales, mainly due to a reduction in sales
of PPE products and COVID-19 test kits
offset by $39 million of gross profit from acquisitions and gross margin expansion as a result of
a favorable impact
of sales mix of higher-margin products.
Technology and value-added services gross profit increased as a result of a higher gross profit from internally
generated sales and gross profit of $5 million from acquisitions, as well
as an increase in gross margin rates
primarily due to product mix and increases in productivity.
41
Operating Expenses
Operating expenses (consisting of selling, general and administrative
expenses; depreciation and amortization,
restructuring and integration costs) by segment and in total were as follows:
% of
% of
July 1,
Respective
June 25,
Respective
June 26,
Respective
Increase
20222023
Net Sales
20212022
Net Sales
$
%
Health care distribution
 
$
1,372
23.8
%
$
1,283
21.9
%
$
1,19689
21.4
%
$
87
7.47.0
%
Technology and value-added services
 
193
50.3
171
47.5
14622
49.1
25
16.713.1
Total
 
$
1,565
25.4
$
1,454
23.4
$
1,342111
22.87.7
The net increase in operating expenses is attributable to the following:
Change in
Restructuring Costs
Increase in
Operating Costs
Acquisitions
Total
Health care distribution
$
11242
8.4$
Selling, general16
$
31
$
89
Technology and administrative expenses (including restructuring costs)value-added services
6
12
4
22
Total
 
increased $112 million, or 8.4%.
$
48
$
28
$
35
$
111
The $87 million increase in selling, generalrestructuring costs are primarily related to severance and administrativeemployee-related
costs, accelerated amortization of
right-of-use lease assets and fixed assets, and other lease exit costs.
During the six months ended July 1, 2023, our
operating expenses withinwere
 
our health care distribution segment
was attributable to an increasefavorably impacted by the recognition of $53 million of operating costs and an increasea remeasurement gain
 
of $38$18 million following
an acquisition of additional costs
from acquired companies, partially offset by a decreasecontrolling interest of $4 million in restructuring costs.a previously held equity
investment.
 
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
includes increases in payroll and payroll related costs, and
travel and convention expenses.
 
As a percentageexpenses in both of net sales, generalour reportable
segments and administrativeincreased acquisition expenses
remained
consistent at 9.3%. in our healthcare distribution segment.
Other Expense, Net
Other expense, net was as follows:
July 1,
June 25,
June 26,
Variance
20222023
20212022
$
%
Interest income
 
$
56
$
34
$
2
47.655.9
%
Interest expense
 
(16)(33)
(13)(15)
(3)(18)
(23.0)
Other, net
-
1
(1)
(110.0)(124.7)
Other expense, net
 
$
(27)
$
(11)
$
(9)(16)
$
(2)
(23.6)(147.9)
Interest income increased $2 million and interest expense increased
$3 million primarily due to increased interest rates.
Interest expense increased primarily due to
increased borrowings and increased interest rates.
Income Taxes
For the six months ended June 25, 2022,July 1, 2023 our effective tax rate was 23.9%22.8% compared
 
to 24.3%23.9% for the prior year
period.
 
The difference between our effective tax rate and the federal statutory tax rate forprimarily relates
 
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 six 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. expense.
4142
Liquidity and Capital Resources
Our principal capital requirements have included funding of acquisitions, purchases
 
of additional noncontrolling
interests, repayments of debt principal, the funding of working capital needs,
 
purchases of fixed assets and
repurchases of common stock (which had been temporarily suspended
in April 2020, but were resumed in early
March 2021).stock.
 
Working capital requirements generally result from increased sales, special
inventory forward buy-in
opportunities and payment terms for receivables
and payables.
 
Historically, sales have
tended to be stronger during
the second half of the year and special inventory
forward buy-in opportunities have
have been most prevalent just before
the end of the year, and have caused our working capital requirements
to be higher
from the end of the
third quarter
to the end of the first quarter of
the following year.
We finance our business primarily through cash generated from our operations, revolving credit facilities and debt
placements.
 
Please see
 
for further information.
 
Our ability to generate sufficient cash flows from
operations is dependent on the continued demand of our customers for
 
for our products and services, and access to
products and services from our suppliers.
Our business requires a substantial investment in working capital, which
 
is susceptible to fluctuations during the
year as a result of inventory purchase patterns and seasonal demands.
 
Inventory purchase activity is a function of
sales activity, special inventory forward buy-in opportunities and our desired level of inventory.
 
We anticipate
future increases in our working capital requirements.
We finance our business to provide adequate funding for at least 12 months.
 
Funding requirements are based on
forecasted profitability and working capital needs, which, on occasion, may
 
change.
 
Consequently, we may change
our funding structure to reflect any new requirements.
We believe that our cash and cash equivalents, our ability to access private debt markets and public equity markets,
and our available funds under existing credit facilities provide us with
 
sufficient liquidity to meet our currently
foreseeable short-term and long-term capital needs.
Our acquisition strategy is focused on investments in companies that
 
add new customers and sales teams, increase
our geographic footprint (whether entering a new country, such as emerging markets, or building scale where we
have already invested in businesses), and finally, those that enable us to access new products and technologies.
As
part of our BOLD+1 Strategic Plan, including pursuing focused mergers and acquisitions,
subsequent to July 1,
2023 we have announced acquisitions of companies specializing in clear aligners,
homecare medical products
delivered directly to patients, and dental practice transition services.
Net cash provided by operating activities was $250$301 million for the
 
six months ended June 25, 2022,July 1, 2023, compared to net
net cash provided by operating activities of $222$250 million for the comparable
prior year period.year.
 
The net change of
$28 $51 million was
primarily attributabledue to higher net income and increased
a favorable change in working capital, specificallynet of acquisitions,
partially offset by a decrease in
inventory levels of PPE and COVID-19 related products.
These working capital increases were partially offset by
reduced accounts payable and accrued expenses.operating income.
Net cash used in investing activities was $340 million for the six months
ended July 1, 2023, compared to net cash
used in investing activities of $59 million for the six
months ended June 25, 2022, compared to $341
million for the comparable prior year period.year.
 
The net change of $282$281 million was primarily
attributable to
decreased payments for equity investments increased business combinations and business acquisitions.investment activity.
Net cash used inprovided by financing activities was $195$59 million for the
 
six months ended June 25, 2022,July 1, 2023, compared to net
cash used in financing activities of $139$195 million for the comparable
prior year period.year.
 
The net change of $56
$254 million was primarily
due to reducedincreased net borrowings from debt, partially
offset by decreasedincreased repurchases
of
common stock.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4243
The following table summarizes selected measures of liquidity and capital
 
resources:
June 25,July 1,
December 25,31,
2023
2022
2021
Cash and cash equivalents
 
$
108137
$
118117
Working
 
capital
 
(1)
1,7131,635
1,5371,764
Debt:
Bank credit lines
 
$
85325
$
51103
Current maturities of long-term debt
 
466
116
Long-term debt
 
7691,133
8111,040
Total debt
 
$
8581,524
$
8731,149
Leases:
Current operating lease liabilities
$
74
$
7673
Non-current operating lease liabilities
276284
268275
(1)
 
Includes $76$78 million and $138$327 million of certain accounts receivable which serve as security for U.S. trade accounts receivable
securitization at June 25, 2022July 1, 2023 and December 25, 2021,31, 2022, respectively.
Our cash and cash equivalents consist of bank balances and investments
 
in money market funds representing
overnight investments with a high degree of liquidity.
Accounts receivable days sales outstanding and inventory turns
Our accounts receivable days sales outstanding from operations decreased
 
increased to 43.3 days as of July 1, 2023 from 42.2
days as of June 25, 2022 from
42.3 days as of June 26, 2021.2022.
 
During the six months ended June 25, 2022,July 1, 2023, we wrote off approximately $4
$11 million of
of fully reserved accounts receivable against our trade receivable reserve.
 
Our inventory turns from operations
decreased to 4.4 as of July 1, 2023 from 4.6 as of June 25, 2022 from 5.1 as of June 26, 2021.2022.
 
Our working capital accounts may be impacted by
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
 
approximately 1918 years, some of which
which may include options to extend the leases for up to 1015 years.
 
As of June 25, 2022,July 1, 2023, our right-of-use assets
related to
operating leases were $327$290 million and our current and non-current operating
 
operating lease liabilities were $74
million and $276
$284 million, respectively.
Stock Repurchases
On February 8, 2023, our Board of Directors authorized the repurchase
of up to an additional $400 million in shares
of our common stock.
From March 3, 2003 through June 25, 2022,July 1, 2023, we repurchased $4.1$4.6 billion, or
 
or 82,414,39089,042,683 shares, under our common
stock repurchase programs, with $90$365 million available as of June 25, 2022July 1, 2023
 
for future common stock share
repurchases.
4344
Critical Accounting Policies and Estimates
There have been no material changes in our critical accounting policies and
 
estimates from those disclosed in Item
7 of our Annual Report on Form 10-K for the year ended December 25, 2021,31, 2022,
 
except accounting policies adopted
as of December 26, 2021,January 1, 2023, which are discussed in
 
of the Notes to the Condensed Consolidated Financial
Statements included
under Item 1.
Accounting Standards Update
For a discussion of accounting standards updates that have been adopted
 
or will be adopted, see
and Recently Issued Accounting Standards
of the Notes
to the Condensed Consolidated
Financial Statements included under Item 1.
ITEM 3.
 
QUANTITATIVE
 
AND QUALITATIVE
 
DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our exposure to market risk
 
from that disclosed in Item 7A of our Annual
Report on Form 10-K for the year ended December 25, 2021.31, 2022.
45
ITEM 4.
 
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of management, including
 
our principal executive officer and
principal financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this quarterly report
as such
term is defined in Rules 13a-15(e)
and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as
 
amended (the “Exchange Act”).
 
Based
on this evaluation, our management, including our principal executive
officer and principal
financial officer,
concluded that our disclosure controls and procedures were effective as of June 25, 2022,July 1, 2023, to
 
to ensure that all material
information required to be disclosed by us in reports that we file or submit
 
under the Exchange Act is accumulated
and communicated to them as appropriate to allow timely decisions
 
regarding required disclosure and that all such
information is recorded, processed, summarized and reported within the
 
time periods specified in the SEC’s rules
and forms.
Changes in Internal Control over Financial Reporting
On April 5, 2023, we acquired a 57% voting equity interest in Biotech Dental
(“Biotech Dental”),
which is a
provider of dental implants, clear aligners, and digital dental software
headquartered in France with operations
throughout Europe.
The full integration of Biotech Dental will extend beyond year-end
and, therefore, we
anticipate excluding Biotech Dental from our annual assessment of
internal control over financial reporting as of
December 30, 2023, as permitted by SEC staff interpretive guidance for newly acquired
businesses.
During the quarter ended July 1, 2023,
we completed the acquisition of dental businesses in Europe and South
America, a medical business in Australia and a technology business in
the U.S.
Also, post-acquisition integration
related activities continued for our dental and medical businesses acquired
during prior quarters.
These
acquisitions, the majority of which utilize separate information and
financial accounting systems, have been
included in our condensed consolidated financial statements since their respective
dates of acquisition.
We also completed systems implementation activities in China related to a new ERP system for a dental business.
Finally, we continued systems implementation activities in the U.S. for two of our dental businesses.
The combination of acquisitions (including Biotech Dental), continued acquisition
integrations and systems
implementation activity undertaken during the quarter and carried over
 
carried over from prior quarters when
considered in the
aggregate, represents a material change in our
internal control over financial reporting.
During the quarter ended June 25, 2022, post-acquisition integration
related activities continued for our dental and
medical businesses acquired during prior quarters.
TheseAll acquisitions, the majority of which utilize separate
information and financial accounting systems, have been included
in our condensed consolidated financial
statements since their respective dates of acquisition.
Additionally, we 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 activity
 
activity involve necessary and appropriate
appropriate change-management controls that are considered in our quarterly
assessment of
the design and operating
effectiveness of changes in our internal
control over financial reporting.
Limitations of the Effectiveness of Internal Control
A control system, no matter how well conceived and operated, can provide only
 
only reasonable, not absolute, assurance
that the objectives of the internal control system are met.
 
Because of the inherent limitations of any internal control
system, no evaluation of controls can provide absolute assurance that all control
 
all control issues, if any, within a company
have been detected.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4446
PART
 
II.
 
OTHER INFORMATION
 
ITEM 1.
 
LEGAL PROCEEDINGS
 
For a discussion of Legal Proceedings, see
 
of the Notes to the Condensed Consolidated
Financial Statements included under Item 1.
ITEM 1A. RISK FACTORS
 
There have been no material changes from the risk factors disclosed in
 
Part 1, Item 1A, of our Annual Report on
Form 10-K for the year ended December 25, 2021.31, 2022.
ITEM 2.
 
UNREGISTERED SALES OF EQUITY SECURITIES
 
AND USE OF PROCEEDS
Purchases of equity securities by the issuer
Our share repurchase program, announced on March 3, 2003, originally
, originally allowed us to repurchase up to two million
shares pre-stock splits (eight million shares post-stock splits) of our common
 
stock, which represented
approximately 2.3% of the shares outstanding at the commencement of
 
of the program.
 
Subsequent additional
increases totaling $4.1 $4.9
billion, authorized by our Board of Directors,
to the repurchase program
provide for a total
of $4.2$5.0 billion (including $400 million authorized on February 8, 2023) of shares
of our common stock to be
repurchased under this
program.
As of June 25, 2022,July 1, 2023, we had repurchased approximately $4.1$4.6 billion
 
of common stock (82,414,390(89,042,683 shares) under
these initiatives, with $90$365 million available for future common stock share
 
share repurchases.
The following table summarizes repurchases of our common stock
 
under our stock repurchase program during the
fiscal quarter ended June 25, 2022.July 1, 2023:
Total Number
Maximum Number
Total
of Shares
of Shares
Number
Average
Purchased as Part
that May Yet
of Shares
Price Paid
of Our Publicly
Be Purchased Under
Fiscal Month
Purchased (1)
Per Share
Announced Program
Our Program (2)
3/27/20224/2/2023 through 4/23/202229/2023
-190,000
$
-83.27
-190,000
2,291,2154,939,729
4/24/202230/2023 through 5/28/20226/3/2023
613,265115,734
84.1279.31
613,265115,734
1,726,5115,240,529
5/29/20226/4/2023 through 6/25/20227/1/2023
732,132332,361
79.1675.22
732,132332,361
1,170,3694,500,614
1,345,397638,095
1,345,397638,095
(1)
 
All repurchases were executed in the open market under our existing publicly announced authorized program.
(2)
 
The maximum number of shares that may yet be purchased under this program is determined at the end of each month based on the
closing price of our common stock at that time.
 
This table excludes shares withheld from employees to satisfy minimum tax withholding
requirements for equity-based transactions.
ITEM 5.
OTHER INFORMATION
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4547
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 June 25, 2022,July 1, 2023, formatted in Inline XBRL (included within Exhibit
Exhibit 101 attachments).+
+ Filed or furnished herewith.
 
4648
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: August 2, 20227, 2023