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
April 1, 2023March 30, 2024
or
☐
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
 
ACT
 
OF 1934
For the transition period from ____________ to ____________
Commission File Number:
 
0-27078
HENRY SCHEIN, INC.
(Exact name of registrant as specified in its charter)
Delaware
11-3136595
(State or other jurisdiction of
(I.R.S. Employer Identification No.)
incorporation or organization)
135 Duryea Road
Melville
,
New York
(Address of principal executive offices)
11747
(Zip Code)
(
631
)
843-5500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $.01 per share
HSIC
The
Nasdaq
Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required
 
to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
 
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
 
past 90 days.
Yes
☒
 
No
 
☐
Indicate by check mark whether the registrant has submitted electronically every
 
Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during
 
the preceding 12 months (or for such shorter period
that the registrant was required to submit such files).
Yes
☒
 
No
 
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company.
 
See the definitions of “large accelerated filer,”
 
“accelerated filer,”
“smaller reporting company,”
 
and “emerging growth company”
 
in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
☐
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 May 1, 2023,April 29, 2024,
there were
131,003,202128,050,943
 
shares of the registrant’s common stock outstanding.
 
HENRY SCHEIN, INC.
INDEX
Page
3
4
5
6
7
8
8
9
10
10
11
12
1413
16
18
1921
2022
23
2125
2327
2327
2529
2629
2630
2731
3944
3944
4045
4045
4045
46
4146
4247
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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)
April 1,March 30,
December 31,30,
2024
2023
2022
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents
$
126159
$
117171
Accounts receivable, net of allowancesallowance for credit losses of $
6584
 
and $
6583
1,470
(1)
1,4421,644
1,863
Inventories, net of reserves of $
1,918188
1,963
and $
192
1,686
1,815
Prepaid expenses and other
438589
466639
Total current assets
3,9524,078
3,9884,488
Property and equipment, net
396500
383498
Operating lease right-of-use assets
280314
284325
Goodwill
2,9173,835
2,8933,875
Other intangibles, net
548915
587916
Investments and other
479503
472471
Total assets
$
8,57210,145
$
8,60710,573
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$
855879
$
1,0041,020
Bank credit lines
236264
103264
Current maturities of long-term debt
55103
6150
Operating lease liabilities
7375
7380
Accrued expenses:
Payroll and related
231245
314332
Taxes
156143
132137
Other
566625
592700
Total current liabilities
2,1722,334
2,2242,683
Long-term debt
(1)
1,0212,010
1,0401,937
Deferred income taxes
4077
3654
Operating lease liabilities
274266
275310
Other liabilities
368423
361436
Total liabilities
3,8755,110
3,9365,420
Redeemable noncontrolling interests
570798
576864
Commitments and contingencies
(nil)
(nil)
Stockholders' equity:
Preferred stock, $
0.01
 
par value,
1,000,000
 
shares authorized,
none
 
outstanding
-
-
Common stock, $
0.01
 
par value,
480,000,000
 
shares authorized,
131,196,783128,480,909
 
outstanding on April 01, 2023March 30, 2024 and
131,792,817129,247,765
 
outstanding on December 31, 202230, 2023
1
1
Additional paid-in capital
-
-
Retained earnings
3,6843,838
3,6783,860
Accumulated other comprehensive loss
(213)(239)
(233)(206)
Total Henry Schein, Inc. stockholders' equity
3,4723,600
3,4463,655
Noncontrolling interests
655637
649634
Total stockholders' equity
4,1274,237
4,0954,289
Total liabilities, redeemable noncontrolling
 
interests and stockholders' equity
$
8,57210,145
$
8,60710,573
(1)
Amounts presented include balances held by our consolidated variable interest entity (“VIE”).
At March 30, 2024 and December
30, 2023, includes trade accounts receivable of $
497
million and $
284
million, respectively, and long-term debt of $
300
million and
$
210
million, respectively.
See
 
for further information.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes.
4
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENTS
 
OF INCOME
(in millions,
 
except share and per share data)
(unaudited)
Three Months Ended
March 30,
April 1,
March 26,2024
2023
2022
Net sales
$
3,172
$
3,060
$
3,179
Cost of sales
2,160
2,094
2,206
Gross profit
1,012
966
973
Operating expenses:
Selling, general and administrative
791
717
682
Depreciation and amortization
4461
4744
Restructuring costs
10
30
-
Operating income
150
175
244
Other income (expense):
Interest income
5
3
2
Interest expense
(30)
(14)
(7)
Other, net
2
(1)
-
Income before taxes, equity in earnings of affiliates and noncontrolling interests
163127
239163
Income taxes
(32)
(39)
(57)
Equity in earnings of affiliates,
net of tax
43
4
Net income
98
128
186
Less: Net income attributable to noncontrolling interests
(5)
(7)
(5)
Net income attributable to Henry Schein, Inc.
$
93
$
121
$
181
Earnings per share attributable to Henry Schein, Inc.:
Basic
$
0.72
$
0.92
Diluted
$
1.31
Diluted
0.72
$
0.91
$
1.30
Weighted-average common
 
shares outstanding:
Basic
128,720,661
131,365,789
137,296,581Diluted
Diluted
129,769,580
133,039,886
139,237,472
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes.
5
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENTS
 
OF COMPREHENSIVE INCOME
(in millions)
 
(unaudited)
Three Months Ended
March 30,
April 1,
March 26,2024
2023
2022
Net income
$
98
$
128
$
186
Other comprehensive income, net of tax:
Foreign currency translation gain (loss)
(54)
25
3
Unrealized gain (loss) from foreign currency hedging activities
11
(3)
1
Other comprehensive income (loss), net of tax
(43)
22
4
Comprehensive income
55
150
190
Less: Comprehensive income attributable to noncontrolling interests:
Net income
(7)
(5)
Foreign currency translation gain
(2)
(1)
Comprehensive income attributable to noncontrolling interests:
Net income
(5)
(7)
Foreign currency translation loss (gain)
10
(2)
Comprehensive loss (income) attributable to noncontrolling interests
5
(9)
(6)
Comprehensive income attributable to Henry Schein, Inc.
$
60
$
141
$
184
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes.
6
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENT
 
OF CHANGES IN
 
STOCKHOLDERS’ EQUITY
(in millions, except share data)
(unaudited)
Accumulated
Common Stock
Additional
Other
Total
$0.01 Par Value
Paid-in
Retained
Comprehensive
Noncontrolling
Stockholders'
Shares
Amount
Capital
Earnings
Income / (Loss)
 
Interests
Equity
Balance, December 30, 2023
129,247,765
$
1
$
-
$
3,860
$
(206)
$
634
$
4,289
Net income (excluding $
2
attributable to Redeemable
noncontrolling interests)
-
-
-
93
-
3
96
Foreign currency translation loss (excluding loss of $
10
attributable to Redeemable noncontrolling interests)
-
-
-
-
(44)
-
(44)
Unrealized gain from hedging activities,
net of tax of $
4
-
-
-
-
11
-
11
Change in fair value of redeemable securities
-
-
(42)
-
-
-
(42)
Noncontrolling interests and adjustments related to
business acquisitions
-
-
1
-
-
-
1
Repurchase and retirement of common stock
(998,728)
-
(10)
(65)
-
-
(75)
Stock issued upon exercise of stock options
20,939
-
1
-
-
-
1
Stock-based compensation expense
314,759
-
8
-
-
-
8
Shares withheld for payroll taxes
(103,865)
-
(8)
-
-
-
(8)
Settlement of stock-based compensation awards
39
-
-
-
-
-
-
Transfer of charges in excess of
capital
-
-
50
(50)
-
-
-
Balance, March 30, 2024
128,480,909
$
1
$
-
$
3,838
$
(239)
$
637
$
4,237
Accumulated
Common Stock
Additional
Other
Total
$0.01 Par Value
Paid-in
Retained
Comprehensive
Noncontrolling
Stockholders'
Shares
Amount
Capital
Earnings
Income / (Loss)
Interests
Equity
Balance, December 31, 2022
131,792,817
$
1
$
-
$
3,678
$
(233)
$
649
$
4,095
Net income (excluding $
4
 
attributable to redeemableRedeemable
noncontrolling interests)
-
-
-
121
-
3
124
Foreign currency translation gain (excluding gain of $
2
attributable to redeemableRedeemable noncontrolling interests)
-
-
-
-
23
-
23
Unrealized loss from foreign currency hedging activities,
net of tax benefit of $
1
-
-
-
-
(3)
-
(3)
Change in fair value of redeemable securities
-
-
3
-
-
-
3
Initial noncontrolling interests and adjustments related to
business acquisitions
-
-
-
-
-
3
3
Repurchases and retirement of common stock
(1,223,919)
-
(13)
(87)
-
-
(100)
Stock-based compensation expense
1,016,300
-
10
-
-
-
10
Stock issued upon exercise of stock options
10,779
-
1
-
-
-
1
Shares withheld for payroll taxes
(399,194)
-
(29)
-
-
-
(29)
Transfer of charges in excess of
 
capital
-
-
28
(28)
-
-
-
Balance, April 1, 2023
131,196,783
$
1
$
-
$
3,684
$
(213)
$
655
$
4,127
Accumulated
Common Stock
Additional
Other
Total
$0.01 Par Value
Paid-in
Retained
Comprehensive
Noncontrolling
Stockholders'
Shares
Amount
Capital
Earnings
Income / (Loss)
Interests
Equity
Balance, December 25, 2021
137,145,558
$
1
$
-
$
3,595
$
(171)
$
638
$
4,063
Net income (excluding $
4
attributable to redeemable
noncontrolling interests)
-
-
-
181
-
1
182
Foreign currency translation gain (excluding gain of $
1
attributable to redeemable noncontrolling interests)
-
-
-
-
2
-
2
Unrealized gain from foreign currency hedging activities,
net of tax of $
1
-
-
-
-
1
-
1
Purchase of noncontrolling interests
-
-
-
-
-
(7)
(7)
Change in fair value of redeemable securities
-
-
(3)
-
-
-
(3)
Stock-based compensation expense
876,161
-
12
-
-
-
12
Stock issued upon exercise of stock options
26,233
-
2
-
-
-
2
Shares withheld for payroll taxes
(336,331)
-
(28)
-
-
-
(28)
Settlement of stock-based compensation awards
(2,812)
-
-
-
-
-
-
Transfer of charges in excess of
capital
-
-
17
(17)
-
-
-
Balance, March 26, 2022
137,708,809
$
1
$
-
$
3,759
$
(168)
$
632
$
4,224
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes.
7
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENTS
 
OF CASH FLOWS
(in millions)
(unaudited)
Three Months Ended
March 30,
April 1,
March 26,2024
2023
2022
Cash flows from operating activities:
Net income
$
98
$
128
$
186
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
73
52
55
Non-cash restructuring charges
71
-7
Stock-based compensation expense
108
1210
Provision for losses on trade and other accounts receivable
15
1
Provision for (benefit from) deferred income taxes
2
(3)2
Equity in earnings of affiliates
(4)(3)
(4)
Distributions from equity affiliates
2
42
Changes in unrecognized tax benefits
2
1
4Other
Other
(6)
(1)
(7)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
190
(20)
16Inventories
Inventories
74
63
(9)
Other current assets
41
29
26
Accounts payable and accrued expenses
(290)
(243)
(188)
Net cash provided by operating activities
27197
9327
Cash flows from investing activities:
Purchases of fixed assetsproperty and equipment
(41)
(31)
(19)
Payments related to equity investments and business acquisitions,
net of cash acquired
(20)
(1)
(5)
Proceeds from loan to affiliate
1
2
4
Other
Capitalized software costs
(9)
(7)(9)
Other
(3)
-
Net cash used in investing activities
(72)
(39)
(27)
Cash flows from financing activities:
Net change in bank borrowingscredit lines
-
132
30
Proceeds from issuance of long-term debt
90
31
-
Principal payments for long-term debt
(60)
(1)
(53)
Proceeds from issuance of stock upon exercise of stock options
1
21
Payments for repurchases and retirement of common stock
(75)
(100)
-
Payments for taxes related to shares withheld for employee taxes
(30)(7)
(26)(30)
Distributions to noncontrolling shareholders
(4)(6)
(5)(4)
Acquisitions of noncontrolling interests in subsidiaries
(94)
(8)
(10)
Net cash provided by (used in) financing activities
21(151)
(62)21
Effect of exchange rate changes on cash and cash equivalents
-14
4-
Net change in cash and cash equivalents
9(12)
89
Cash and cash equivalents, beginning of period
171
117
118
Cash and cash equivalents, end of period
$
126159
$
126
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
8
Note 1 – Basis of Presentation
Our condensed consolidated financial statements include the accounts of Henry
 
Schein, Inc., and all of our
controlled subsidiaries (“we”, “us” orand “our”).
 
All intercompany accounts and transactions are eliminated
in
consolidation.
 
Investments in unconsolidated affiliates infor 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 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 31, 202230, 2023 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 consolidated results of operations and
financial position for the interim periods presented.
 
All such adjustments are of a normal recurring nature.
 
The preparation of financial statements in conformity with accounting principles
 
generally accepted in the United
States requires us to make estimates and assumptions that affect the reported amounts of assets
 
assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
 
statements and the reported amounts of
revenues and expenses during the reporting period.
 
Actual results could differ from those estimates.
 
The results of
operations for the three months ended April 1, 2023March 30, 2024 are not necessarily
 
indicative of the results to be expected for
for any other interim period or for the year ending December 30, 2023.28, 2024.
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
April 1, 2023 and December 31, 2022, certain trade accounts receivable that
can only be used to settle obligations
of this VIE were $
555
million and $
327
million, respectively, and the liabilities of this VIE where the creditors
have recourse to us were $
420
million and $
255
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.
There is an ongoing risk that the consequences of the COVID-19
pandemic may again have a
material adverse effect on our business,
We consolidate the results of operations and cash flowsfinancial position of a trade accounts receivable securitization which
we consider a VIE because we are its primary beneficiary, as we have the power to direct activities that most
significantly affect its economic performance and mayhave the obligation to absorb the
 
result in a material adversemajority of its losses or
effect on our financial condition and liquidity.benefits.
 
However,For this VIE, the extenttrade accounts receivable transferred
to the VIE are pledged as collateral to the related
debt.
The VIE’s creditors have recourse to us for losses on these trade accounts receivable.
At March 30, 2024 and
December 30, 2023, certain trade accounts receivable that can only be used
to settle obligations of this VIE were
$
497
million and $
284
million, respectively, and the potential impact cannot be reasonablyliabilities of this VIE where the creditors have recourse to us
estimated at this timewere $
300
million and $
210
million, respectively.
.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
9
Note 2 – CriticalSignificant Accounting Policies Accounting Pronouncements Adopted
and Recently Issued Accounting
Standards
Standards
Critical
Significant Accounting Policies
 
There have been no material changes in our criticalsignificant accounting policies during
 
during the three months ended April 1,March
2023,30, 2024, as compared to the criticalsignificant accounting policies described in Item
 
78 of our Annual Report on Form 10-K10-
K for
the year ended December 31, 2022.30, 2023.
Recently Issued Accounting Standards
In September 2022,December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) No. 2022-04, “Liabilities – Supplier Finance Programs (Subtopic2023-09, “
Income Taxes (Topic
 
405-50)740): Disclosure of Supplier FinanceImprovements to Income Tax Disclosures
Program Obligations,,” which will increase transparency of supplier financerequires public
business entities to disclose additional information in specified categories with
 
programsrespect to the reconciliation of the
effective tax rate to the statutory rate for federal, state and foreign income taxes.
It also requires greater detail
about individual reconciling items in the rate reconciliation to the extent
the impact of those items exceeds a
specified threshold.
In addition to new disclosures associated with the rate reconciliation,
the ASU requires
information pertaining to taxes paid (net of refunds received) to be
disaggregated for federal, state and foreign taxes
and further disaggregated for specific jurisdictions to the extent the
related amounts exceed a quantitative threshold.
The ASU also describes items that need to be disaggregated based on
their nature, which is determined by reference
to the item’s fundamental or essential characteristics, such as the transaction or event that triggered the
establishment of the reconciling item and the activity with which the reconciling
item is associated.
The ASU
eliminates the historic requirement that entities disclose information concerning
unrecognized tax benefits having a
reasonable possibility of significantly increasing or decreasing in the 12
months following the reporting date.
This
ASU is effective for annual periods beginning after December 15, 2024.
Early adoption is permitted for annual
financial statements that have not yet been issued or made available
for issuance.
This ASU should be applied on a
prospective basis; however, retrospective application is permitted.
We are currently evaluating the impact that
ASU 2023 – 09 will have on our consolidated financial statements.
In November 2023, the FASB issued ASU 2023-07, “
Segment Reporting (Topic 280): Improvements to Reportable
Segments
,” which aims to improve financial reporting by requiring entities that use
such programs in connection with the purchase of goods and services to disclosedisclosure
 
of incremental segment information
on an annual and interim basis for all public entities to enable investors to
develop more decision-useful financial
analyses.
Currently, Topic
280 requires that a public entity disclose certain qualitative and quantitative
information about such programs.its
 
reportable
segments.
For example, a public entity is required to report a measure of
segment profit or loss that the chief
operating decision maker uses to assess segment performance and
make decisions about allocating resources.
Topic 280 also requires other specified segment items and amounts, such as depreciation, amortization, and
depletion expense, to be disclosed under certain circumstances.
The amendments in this ASU 2022-04do not change or
remove those disclosure requirements and do not change how a public
entity identifies its operating segments,
aggregates those operating segments or applies the quantitative thresholds
to determine its reportable segments.
This ASU is effective for fiscal years beginning after December 15, 2022,2023, and interim
including interim periods within those fiscal years except for amended
roll forward information, which is effective
for fiscal years beginning after December 15, 2023.2024.
Early adoption is permitted.
 
We do not expect that the requirements of this guidanceASU
2023 – 07 will
have a material impact on our condensed consolidated financial
statements.
In December 2022,March 2024, the FASB issued ASU No. 2022-06, “Reference Rate Reform2024-01, “
Compensation - Stock Compensation (Topic 848)718): DeferralScope
Application of theProfits Interest and Similar Awards,
Sunset Date” which clarifies how to determine whether a profit interest and
similar awards should be accounted for as a share-based payment arrangement
under Topic 718 or within the scope
of other guidance.
The ASU provides an illustrative example with multiple fact patterns
and amends the structure
of paragraph 718-10-15-3 of Topic 848,” which extends718 to improve its clarity and operability.
The guidance in ASU 2024-01
applies to all entities that issue profits interest awards as compensation
to employees or nonemployees in exchange
for goods or services.
Entities can apply the periodamendments either retrospectively to
all periods presented in the
financial statements or prospectively to profits interest awards granted
or modified on or after the date of adoption.
If prospective application is elected, an entity must disclose the nature
of temporary optional expedientsand reason for the change in accounting
principle that resulted from the adoption of the ASU.
This ASU is effective for fiscal years beginning after
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
(unaudited
)
10
December 21, 2022 to December 31, 2024.15, 2024, including interim periods within those fiscal years.
 
We do not expect that the requirements of this guidance
ASU 2024 – 01 will have a
material impact on our condensed consolidated financial
statements.
Note 3 – Cyber Incident
In October 2023 Henry Schein experienced a cyber incident that primarily
 
affected the operations of our North
American and European dental and medical distribution businesses.
 
Henry Schein One, our practice management
software, revenue cycle management and patient relationship management
 
solutions business, was not affected, and
our manufacturing businesses were mostly unaffected.
 
On November 22, 2023, we experienced a disruption of our
ecommerce platform and related applications, which has since been
 
remediated.
During the three months ended March 30, 2024, we continued
 
to experience a residual impact of the cyber events
noted above relating primarily to decreased sales to episodic customers (customers
 
that had generally registered a
less continuous level of demand pre-incident).
During the three months ended March 30, 2024, we incurred $
5
 
million of expenses directly related to the cyber
incident, mostly consisting of professional fees.
 
We maintain cyber insurance, subject to certain retentions and
policy limitations.
 
With respect to the October 2023 cyber incident, we have a $
60
 
million insurance policy,
following a $
5
 
million retention.
 
 
 
 
 
Table of Contents
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
1011
Note 34 – Net Sales from Contracts with Customers
Net sales are recognized in accordance with policies disclosed in Item
 
8 of our Annual Report on Form 10-K for
the year ended December 31, 2022.30, 2023.
Disaggregation of Net Sales
The following table disaggregates our net sales by reportable segment and geographic
area:
Three Months Ended
April 1, 2023
North America
International
Global
Net sales:
Health care distribution
Dental
$
1,144
$
754
$
1,898
Medical
951
20
971
Total health care distribution
2,095
774
2,869
Technologyoperating segment
 
and value-added services
166
25
191
Total net sales
$
2,261
$
799
$
3,060
Three Months Ended
March 26, 2022
North America
International
Global
Net sales:
Health care distribution
Dental
$
1,105
$
723
$
1,828
Medical
1,150
22
1,172
Total health care distribution
2,255
745
3,000
Technology
and value-added services
156
23
179
Total net sales
$
2,411
$
768
$
3,179
geographic area:
Deferred Revenue
During the three months ended April 1, 2023, we recognized in net sales
$
35
million of the amounts that were
previously deferred at December 31, 2022.
At December 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 April 1, 2023, the current and non-current portion of contract liabilities were
$
85
million and $
9
million, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
March 30, 2024
North America
International
Global
Net sales:
Health care distribution
Dental
$
1,103
$
811
$
1,914
Medical
1,014
27
1,041
Total health care distribution
2,117
838
2,955
Technology
and value-added services
189
28
217
Total net sales
$
2,306
$
866
$
3,172
Three Months Ended
April 1, 2023
North America
International
Global
Net sales:
Health care distribution
Dental
$
1,144
$
754
$
1,898
Medical
951
20
971
Total health care distribution
2,095
774
2,869
Technology
and value-added services
166
25
191
Total net sales
$
2,261
$
799
$
3,060
Contract Liabilities
At March 30, 2024, December 30, 2023, and December 31, 2022, the current
and non-current contract liabilities
were $
84
million and $
8
million; $
89
million and $
9
million; and $
86
million and $
8
million, respectively.
During
the three months ended March 30, 2024, we recognized, in net sales, $
36
million of the amount that was previously
deferred at December 30, 2023.
During the three months ended April 1, 2023, we recognized
in net sales $
35
million of the amounts that were previously deferred at December 31, 2022.
Current contract liabilities are
included in accrued expenses: other and the non-current contract liabilities
are included in other liabilities within
our consolidated balance sheets.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
1112
Note 45
 
–
Segment Data
We conduct our business through
two
 
reportable segments: (i) health care distribution and (ii) technology
and
value-added services.
 
These segments offer different products and services to the same customer base.
 
Our global
dental businesses serve office-based dental practitioners, dental laboratories, schools, government
 
and other
institutions.
 
Our medical businesses serve physician offices, urgent care centers, ambulatory care sites,
 
emergency
medical technicians, dialysis centers, home health, federal and state governments
 
and large enterprises, such as
group practices, and integrated delivery networks, among other providers
 
across a wide range of specialties.
 
Our
dental and medical groups serve practitioners in
3233
 
countries worldwide.
The health care distribution reportable segment aggregates our global dental
 
and medical operating segments.
 
This
segment distributes consumable products, dental specialty products small(including
 
implant, orthodontic and endodontic
products),
small equipment, laboratory products, large
equipment, equipment repair
services, branded and generic
pharmaceuticals,
vaccines, surgical products, diagnostic
tests, infection-control products, personal
protective
equipment (“PPE”)
products, vitamins, and vitamins.orthopedic implants.
 
Our global technology and value-added services reportable segment provides
 
software, technology and other value-
added services to health care practitioners.
 
Our technology offerings include practice management software
systems for dental and medical practitioners.
 
Our value-added practice solutions include practice consultancy,
education, revenue cycle management and financial services on a non-recourse
 
basis, e-services, practicecontinuing
education services for practitioners,
practice technology, network and hardware services, as well as continuing education services for practitioners.and other services.
The following tables present information about our reportable and operating
 
segments:
Three Months Ended
March 30,
April 1,
March 26,2024
2023
2022
Net Sales:sales:
Health care distribution
(1)
Dental
$
1,914
$
1,898
$Medical
1,828
Medical
1,041
971
1,172
Total health care distribution
2,8692,955
3,0002,869
Technology
 
and value-added services
(2)
217
191
179Total
Total$
3,172
$
3,060
$
3,179
(1)
Consists of consumable products, dental specialty products (including implant, orthodontic and endodontic products), small
equipment, laboratory products, large equipment, equipment repair services, branded and
generic pharmaceuticals, vaccines, surgical products, dental specialty products (including implant, orthodontic and endodontic
products),products, diagnostic tests, infection-control products, PPE products, vitamins, and vitamins.orthopedic implants.
(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, consultingpractice technology, network and hardware services, and other services.
Three Months Ended
March 30,
April 1,
March 26,2024
2023
2022
Operating Income:
Health care distribution
$
126
$
145
$
211
Technology
 
and value-added services
24
30
33
Total
$
175150
$
244175
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
(unaudited
)
13
Note 6
–
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.
2024 Acquisitions
During the quarter ended March 30, 2024, we made acquisitions within
the technology and value-added services
segment.
Our acquired ownership interest in these companies was
100
%.
Total consideration for these acquisitions
was $
19
million.
Net assets acquired primarily consisted of $
8
million of goodwill and $
12
million of intangible
assets.
The intangible assets acquired consisted of customer relationships
and lists of $
6
million, product
development of $
4
million, trademarks and tradenames of $
1
million and non-compete agreements of $
1
million.
Weighted average useful lives for these acquired intangible assets were
10
years,
10
years,
5
years and
5
years,
respectively.
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.
The majority of the acquired goodwill is deductible for tax
purposes.
The impact of these acquisitions, individually and in the aggregate, was
not considered material to our condensed
consolidated financial statements.
2023 Acquisitions
Acquisition of Shield Healthcare
On October 2, 2023 we acquired a
90
% voting equity interest in Shield Healthcare, Inc. (“Shield”), a supplier
of
homecare medical products delivered directly to patients in their homes, for
preliminary consideration of $
366
million (including cash paid of $
307
million, deferred consideration of $
22
million and redeemable noncontrolling
interests of $
37
million).
Based in California, Shield expands our existing medical business
by delivering a diverse
range of products, including items such as incontinence, urology, ostomy, enteral nutrition, advanced wound care
and diabetes supplies.
Additionally, Shield offers continuous glucose monitoring devices directly to patients in
their homes.
The accounting for the acquisition of Shield has not been completed
in several respects, including but not limited to
finalizing valuation assessments of accounts receivable, inventory, accrued liabilities and income and non-income
based taxes.
To assist in the allocation of consideration, we engaged valuation specialists to determine the fair
value of intangible and tangible assets acquired and liabilities assumed.
We will finalize the amounts recognized as
the information necessary to complete the analysis is obtained.
During the quarter ended March 30, 2024, we
recorded immaterial measurement period adjustments, related primarily
to operating leases.
The pro forma financial information has not been presented because the
impact of the Shield acquisition was
immaterial to our consolidated financial statements.
Acquisition of S.I.N. Implant System
On July 5, 2023, we acquired a
100
% voting equity interest in S.I.N. Implant System (“S.I.N.”) for consideration
of
$
329
million.
Based in São Paulo, S.I.N. manufactures an extensive line of products
to perform dental implant
procedures and is focused on advancing the development of value-priced dental
implants.
S.I.N. recently expanded
the distribution of its products into the United States and other international
markets.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
(unaudited
)
14
The accounting for the acquisition of S.I.N. has not been completed
in several respects, including but not limited to
finalizing valuation assessments of accounts receivable, inventory, accrued liabilities and income and non-income
based taxes.
To assist in the allocation of consideration, we engaged valuation specialists to determine the fair
value of intangible and tangible assets acquired and liabilities assumed.
We will finalize the amounts recognized as
the information necessary to complete the analysis is obtained.
We expect to finalize these amounts as soon as
possible but no later than one year from the acquisition date.
During the quarter ended March 30, 2024, we
recorded insignificant measurement period adjustments, related primarily
to deferred tax adjustments.
The pro forma financial information has not been presented because the
impact of the S.I.N. acquisition was
immaterial to our consolidated financial statements.
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, individualized prosthetics
and innovative digital dental software based in
France.
Biotech Dental has several important solutions for dental practices
and dental labs, 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.
The following table aggregates the final fair value, as of the date of acquisition,
of consideration paid and net assets
acquired in the Biotech Dental acquisition, including measurement period
adjustments recorded through March 30,
2024:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
(unauditedPreliminary
)Allocation as
12
Note 5
–
Business Acquisitions
In connection with our business acquisitions, the major classes of
assets and liabilities to which we generally
allocate acquisition consideration to, excluding goodwill, include
identifiable intangible assets (i.e., customer
relationships and lists, trademarks and trade names, product development
and non-compete agreements), inventory
and accounts receivable.
The estimated fair value of identifiable intangible assets
is based on critical judgments
and assumptions derived from analysis of market conditions, including
discount rates, projected revenue growth
rates (which are based on historical trends and assessment of financial projections),
estimated customer attrition and
projected cash flows.
These assumptions are forward-looking and could be affected by future economic
and market
conditions.
While we use our best estimates and assumptions to accurately value assets
acquired and liabilities assumed at the
acquisition date as well as contingent consideration, where applicable,
our estimates are inherently uncertain and
subject to refinement.
As a result, within 12 months following the date of acquisition,
or the measurement period,
we may record adjustments to the assets acquired and liabilities assumed
with the corresponding offset to goodwill
within our condensed consolidated balance sheets.
At the end of the measurement period or final determination of
the values of such assets acquired or liabilities assumed, whichever
comes first, any subsequent adjustments are
recognized in our condensed consolidated statements of operations.
The accounting for certain of our acquisitions during the year ended December
31, 2022 had not been completed in
several areas, including but not limited to pending assessments of intangible
assets, and contingent consideration
assets and liabilities.
For the three months ended AprilJuly 1, 2023 and
Measurement
Period
Adjustments
Allocation as
of March 26, 2022,
there were no material30,
adjustments recorded in our condensed consolidated statements of income
relating to changes in estimated values of
assets acquired, liabilities assumed and contingent consideration
assets and liabilities.
2023 Acquisitions
During the three months ended April 1, 2023, we acquired the majority
of a company within the health care
distribution segment.
The impact of this acquisition was not considered material to
our condensed consolidated
financial statements.
The following table aggregates
the estimated fair value, as of the date of acquisition, of consideration
paid and net
assets acquired for the acquisition during the three months ended April
1, 2023.
20232024
Acquisition consideration:
Cash
$
8216
Deferred consideration$
1-
Noncontrolling$
216
Fair value of contributed equity share in a controlled subsidiary
25
-
25
Redeemable noncontrolling interests
2182
-
182
Total consideration
$
11423
$
-
$
423
Identifiable assets acquired and liabilities assumed:
Current assets
$
78
$
(4)
$
74
Intangible assets
$119
270
189
Other noncurrent assets
76
(7)
69
Current liabilities
(50)
(10)
(60)
Long-term debt
(90)
17
(73)
Deferred income taxes
(38)
(15)
(53)
Other noncurrent liabilities
(16)
(4)
(20)
Total identifiable
 
net assets
279
47
126
Goodwill
9344
(47)
297
Total net assets acquired
$
11423
$
-
$
423
The acquired goodwill is deductible for tax purposes.
During the three months ended April 1, 2023 the identifiable intangible
 
assets acquired consisted of customer
relationships and lists of $
1
million and trademarks and tradenames of $
1
million.
The estimated useful lives of
these intangible assets are
2 years
and
5 years
, respectively.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
1315
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.
During the quarter
ended March 30, 2024 we finalized our accounting for the acquisition
and recorded measurement period
adjustments related primarily to the completion of the intangibles valuation,
including adjustments to intangibles,
deferred tax and certain other assets and liabilities.
The following table summarizes the identifiable intangible assets acquired
as part of the acquisition of Biotech
Dental:
2023
Weighted Average
Useful
Lives (in years)
Customer relationships and lists
$
47
9
Trademarks / Tradenames
18
7
Product development
124
10
Total
$
189
The pro forma financial information has not been presented because the
impact of the Biotech Dental acquisition
was immaterial to our condensed consolidated financial statements.
Other 2023 Acquisitions
During the year ended December 30, 2023, in addition to those noted above,
we acquired companies within the
health care distribution and technology and value-added services segments.
Our acquired ownership interest ranged
between
51
% to
100
%.
During the quarter ended March 30, 2024, we recorded an
adjustment of $
15
million,
within the selling, general and administrative line in our condensed consolidated
statements of income, representing
a change in the fair value of contingent consideration related to a 2023
acquisition.
During the three months ended March 30, 2024 we completed accounting
for certain acquisitions that occurred in
the year ended December 30, 2023.
In relation to these acquisitions, we did not record material
adjustments in our
condensed consolidated financial statements relating to changes in estimated
values of assets acquired, liabilities
assumed and contingent consideration assets and liabilities.
The pro forma financial information for our 2023 acquisitions has not been
presented because the impact of the
acquisitions was immaterial to our condensed consolidated
financial statements.
Acquisition Costs
During the three months ended March 30, 2024 and April 1, 2023 and March 26, 2022 we
 
incurred $
2
million and $
7
 
million in
acquisition costs, which are included in “selling, general and $
1
administrative”
 
million,within our condensed consolidated
respectively, in acquisition costs.statements of income.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
1416
Note 67 – Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or
 
paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
 
The fair value hierarchy distinguishes between
(1) market participant assumptions developed based on market data obtained
 
from independent sources (observable
inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best
information available in the circumstances (unobservable inputs).
The fair value hierarchy consists of three broad levels, which gives the
 
highest priority to unadjusted quoted prices
in active markets for identical assets or liabilities (Level 1) and the lowest priority
 
to unobservable inputs (Level 3).
 
The three levels of the fair value hierarchy are described as follows:
•
 
Level 1— Unadjusted quoted prices in active markets for identical assets
 
or liabilities that are accessible at the
measurement date.
•
 
Level 2— Inputs other than quoted prices included within Level 1 that are observable
 
observable for the asset or liability,
either directly or indirectly.
 
Level 2 inputs include: quoted prices for similar assets or liabilities
 
in active markets;
quoted prices for identical or similar assets or liabilities in markets
that are
not active; inputs other than quoted
prices that are observable for the asset or liability; and inputs that are
 
derived principally from or corroborated by
observable market data by correlation or other means.
•
 
Level 3— Inputs that are unobservable for the asset or liability.
The following section describes the fair values of our financial instruments
 
and the methodologies that we used to
measure their fair values.
 
Investments and notes receivable
There are no quoted market prices available for investments in unconsolidated
 
affiliates and notes receivable.
 
Certain of our notes receivable contain variable interest rates.
 
We believe the carrying amounts are a reasonable
estimate of fair value based on the interest rates in the applicable
markets.
Our investments and notes receivable
fair value is based on Level 3 inputs within the fair value hierarchy.
 
Debt
The fair value of our debt (including bank credit lines, current maturities
 
of long-term debt and long-term debt) is
classified asbased on Level 3 inputs within the fair value hierarchy, and as of April 1, 2023March 30, 2024 and December 31, 202230, 2023 was estimated
estimated at $
1,3122,377
 
million and $
1,1492,351
 
million, respectively.
 
Factors that we considered when estimating the fair value
of
value of our debt include market conditions, such as interest rates and credit
spreads.
Derivative contracts
Derivative contracts are valued using quoted market prices and
 
significant other observable 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, relatedforecasted
 
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 hedgesinterest rate swaps and a total
return swap for the purpose of economically hedging our unfunded non-qualified
supplemental executive retirement
plan and our deferred compensation plan.swaps.
The fair values for the majority of our foreign currency derivative contracts
 
are obtained by comparing our contract
rate to a published forward price of the underlying market rates, which
 
isare based on market rates for comparable
transactions andthat are classified within Level 2 of the fair value hierarchy.
The fair value of the interest rate swap, which is classified within Level 2
 
of the fair value hierarchy, is determined
by comparing our contract rate to a forward market rate as of the
valuation date.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
(unaudited
)
17
The fair value of total return swaps is determined by valuing the underlying
exchange traded funds of the swap
using market-on-close pricing by industry providers as of the valuation
date that are classified within Level 2 of the
fair value hierarchy.
Redeemable noncontrolling interests
The values for redeemable noncontrolling interests are based on recent
transactions and/or implied multiples of
earnings that are classified within Level 3 of the fair value hierarchy.
See
for additional information.
Assets measured on a non-recurring basis at fair value include intangibles.
Inputs for measuring intangibles are
classified as Level 3 within the fair value hierarchy.
The following table presents our assets and liabilities that are measured and
recognized at fair value on a recurring
basis classified under the appropriate level of the fair value hierarchy as of
March 30, 2024 and December 30,
2023:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
March 30, 2024
Level 1
Level 2
Level 3
Total
Assets:
Derivative contracts designated as hedges
$
-
$
1
$
-
$
1
Derivative contracts undesignated
-
2
-
2
Total return
swap
-
1
-
1
Total assets
$
-
$
4
$
-
$
4
Liabilities:
Derivative contracts designated as hedges
$
-
$
1
$
-
$
1
Derivative contracts undesignated
-
1
-
1
Total liabilities
$
-
$
2
$
-
$
2
Redeemable noncontrolling interests
$
-
$
-
$
798
$
798
December 30, 2023
Level 1
Level 2
Level 3
Total
Assets:
Derivative contracts designated as hedges
$
-
$
1
$
-
$
1
Derivative contracts undesignated
-
1
-
1
Total return
swap
-
4
-
4
Total assets
$
-
$
6
$
-
$
6
Liabilities:
Derivative contracts designated as hedges
$
-
$
18
$
-
$
18
Derivative contracts undesignated
-
2
-
2
Total liabilities
$
-
$
20
$
-
$
20
Redeemable noncontrolling interests
$
-
$
-
$
864
$
864
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
(unaudited
)
18
Note 8 – Debt
Bank Credit Lines
Bank credit lines consisted of the following:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
March 30,
December 30,
2024
2023
Revolving credit agreement
$
50
$
200
Other short-term bank credit lines
214
64
Total
$
264
$
264
Revolving Credit Agreement
On
August 20, 2021
, we entered a $
1.0
 
billion revolving credit agreement (the “Revolving Credit Agreement”)
which was subsequently amended and restated on
July 11, 2023
 
to extend the maturity date to
July 11, 2028
 
and
update the interest rate provisions to reflect the current market approach
for a multicurrency facility.
The interest
rate on this revolving credit facility is based on Term Secured Overnight Financing Rate (“Term SOFR”) plus a
spread based on our leverage ratio at the end of each financial reporting
quarter.
As of March 30, 2024 the interest
rate on this revolving credit agreement was
5.32
% plus
1.10
% for a combined rate of
6.42
%.
The Revolving Credit
Agreement requires, among other things, that we maintain certain maximum
leverage ratios.
Additionally, the
Revolving Credit Agreement contains customary representations, warranties
and affirmative covenants as well as
customary negative covenants, subject to negotiated exceptions, on
liens, indebtedness, significant corporate
changes (including mergers), dispositions and certain restrictive agreements.
As of March 30, 2024 and December
30, 2023, we had $
50
million and $
200
million in borrowings, respectively under this revolving credit facility.
During the three months ended March 30, 2024, the average outstanding balance
under the Revolving Credit
Agreement was approximately $
100
million.
As of March 30, 2024 and December 30, 2023, there were $
10
million and $
10
million of letters of credit, respectively, provided to third parties under this Revolving Credit
Agreement.
Other Short-Term Bank Credit
Lines
As of March 30, 2024 and December 30, 2023, we had various other short-term
bank credit lines available, in
various currencies, with a maximum borrowing capacity of $
383
million and $
368
million, respectively.
As of
March 30, 2024 and December 30, 2023, $
214
million and $
64
million, respectively, were outstanding.
During the
three months ended March 30, 2024, the average outstanding balances under
our various other short-term bank
credit lines was approximately $
96
million.
At March 30, 2024 and December 30, 2023, borrowings under
other
short-term bank credit lines had weighted average interest rates of
6.08
% and
6.02
%, respectively.
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
1519
Total
Return SwapsLong-term debt
The fair value for the total return swap is measured by valuing
the underlying exchange traded fundsLong-term debt consisted of the swapfollowing:
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 redeemable noncontrolling interests are classified within Level
3 of the fair value hierarchy and are
based on recent transactions and/or implied multiples of earnings.
See
for additional information.
Assets measured on a non-recurring basis at fair value include Goodwill
and Other intangibles, net, and are
classified as Level 3 within the fair value hierarchy.
The following table presents our assets and liabilities that are measured and
recognized at fair value on a recurring
basis classified under the appropriate level of the fair value hierarchy as of
April 1, 2023 and December 31, 2022:
April 1, 2023
Level 1
Level 2
Level 3
Total
Assets:
Derivative contracts designated as hedges
$
-
$
19
$
-
$
19
Derivative contracts undesignated
-
3
-
3
Total return
swaps
-
1
-
1
Total assets
$
-
$
23
$
-
$
23
Liabilities:
Derivative contracts designated as hedges
$
-
$
1
$
-
$
1
Derivative contracts undesignated
-
2
-
2
Total liabilities
$
-
$
3
$
-
$
3
Redeemable noncontrolling interests
$
-
$
-
$
570
$
570
December 31, 2022
Level 1
Level 2
Level 3
Total
Assets:
Derivative contracts designated as hedges
$
-
$
23
$
-
$
23
Derivative contracts undesignated
-
4
-
4
Total assets
$
-
$
27
$
-
$
27
Liabilities:
Derivative contracts designated as hedges
$
-
$
1
$
-
$
1
Derivative contracts undesignated
-
3
-
3
Total return
swaps
-
3
-
3
Total liabilities
$
-
$
7
$
-
$
7
Redeemable noncontrolling interests
$
-
$
-
$
576
$
576
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
(unaudited
)
16
Note 7 – Debt
Bank Credit Lines
Bank credit lines consisted of the following:
April 1,March 30,
December 31,30,
2024
2023
2022
Revolving credit agreement
$
-
$
-
Other short-term bank credit lines
236
103
Total
$
236
$
103
Revolving Credit Agreement
On
August 20, 2021
, we entered into a $
1.0
billion revolving credit agreement (the “Credit Agreement”).
This
facility, which matures on
August 20, 2026
replaced our $
750
million revolving credit facility which was scheduled
to mature in April 2022.
The interest rate is based on the USD LIBOR plus a spread based on our
leverage ratio at
the end of each financial reporting quarter.
Most LIBOR rates have been discontinued after December 31,
2021,
while the remaining LIBOR rates will be discontinued immediately
after June 30, 2023.
We do not expect the
discontinuation of LIBOR as a reference rate in our debt agreements
to have a material adverse effect on our
financial position or to materially affect our interest expense.
The Credit Agreement requires, among other things,
that we maintain certain maximum leverage ratios.
Additionally, the Credit Agreement contains customary
representations, warranties and affirmative covenants as well as customary negative
covenants, subject to
negotiated exceptions, on liens, indebtedness, significant corporate changes
(including mergers), dispositions and
certain restrictive agreements.
As of April 1, 2023 and December 31, 2022, we had
no
borrowings under this
revolving credit facility, and there were $
9
million and $
9
million of letters of credit, respectively, provided to third
parties under the credit facility.
Other Short-Term Bank Credit
Lines
As of April 1, 2023 and December 31, 2022, we had various other short-term
bank credit lines available, with a
maximum borrowing capacity of $
404
million and $
402
million, respectively.
As of April 1, 2023 and December
31, 2022, $
236
million and $
103
million, respectively, were outstanding.
At April 1, 2023 and December 31, 2022,
borrowings under all of these credit lines had a weighted average interest
rate of
7.55
% and
10.11
%, respectively.
Long-term debt
Long-term debt consisted of the following:
April 1,
December 31,
2023
2022
Private placement facilities
$
6991,024
$
6991,074
Term loan
736
741
U.S. trade accounts receivable securitization
360300
330210
Various
 
collateralized and uncollateralized loans payable with interest,
in varying installments through 20232030 at interest rates
ranging from
0.00
% to
3.659.42
% at April 1, 2023March 30, 2024 and
ranging from
0.00
% to
3.509.42
% at December 31, 202230, 2023
846
754
Finance lease obligations
97
108
Total
1,0762,113
1,0462,087
Less current maturities
(55)(103)
(6)(150)
Total long-term debt
$
1,0212,010
$
1,040
1,937
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
(unaudited
)
17
Private Placement Facilities
Our private placement facilities include
four
 
insurance companies, have a total facility amount of $
1.5
 
billion, and
are available on an uncommitted basis at fixed rate economic
 
terms to be agreed upon at the time of issuance, from
time to time through
October 20, 2026
.
 
The facilities allow us to issue senior promissory notes to the lenders
 
lenders at a
fixed rate based on an agreed upon spread over applicable treasury notes
 
at the time of issuance.
 
The term of each
possible issuance will be selected by us and can range from
five
 
to
15 years
 
(with an average life no longer than
12
years
).
 
The proceeds of any issuances under the facilities will be used
 
for general corporate purposes, including
working capital and capital expenditures, to refinance existing indebtedness,
 
and/or to fund potential acquisitions.
 
The agreements provide, among other things, that we maintain
 
certain maximum leverage ratios, and contain
restrictions relating to subsidiary indebtedness, liens, affiliate transactions, disposal
 
of assets and certain changes in
ownership.
 
These facilities contain make-whole provisions in the event that we
 
pay off the facilities prior to the
applicable due dates.
The components of our private placement facility borrowings, which
 
have a weighted average interest rate of
2.993.66
%, as of April 1, 2023March 30, 2024 are presented in the following table:
Amount of
Date of
Borrowing
Borrowing
 
Date of Borrowing
Outstanding
Rate
Due Date
January 20,December 24, 2012
$
50
3.453.00
%
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
$
6991,024
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
(unaudited
)
20
Term Loan
On July 11, 2023, we entered into a
three-year
$
750
million term loan credit agreement (the “Term Credit
Agreement”).
The interest rate on this term loan is based on the Term SOFR plus a spread based on our leverage
ratio at the end of each financial reporting quarter.
This term loan matures on July 11, 2026.
We are required to make quarterly payments of $
5
million from September 2023 through June 2024 and quarterly
payments of $
9
million from September 2024 through June 2026, with the remaining balance
due in July 2026.
As
of March 30, 2024, the borrowings outstanding under this term loan were
$
736
million.
At March 30, 2024, the
interest rate under the Term Credit Agreement was
5.32
% plus
1.47
% for a combined rate of
6.79
%.
As of
December 30, 2023, the borrowings outstanding under this term loan were
$
741
million.
At December 30, 2023,
the interest rate under the Term Credit Agreement was
5.36
% plus
1.35
% for a combined rate of
6.71
%.
However,
we have a hedge in place that ultimately creates an effective fixed rate of
5.91
% and
5.79
% at March 30, 2024 and
December 30, 2023, respectively.
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.
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
.
 
This facility agreement has a
purchase limit of
$
450
 
million with
two
 
banks as agents, and expires on
December 15, 2025
.
As of April 1, 2023March 30, 2024 and December 31, 2022,30, 2023, the borrowings outstanding
 
under this securitization facility were
$
360300
million and $
330210
 
million, respectively.
 
At April 1, 2023,March 30, 2024, the interest rate on borrowings under this
 
this facility was
was based on the asset-backed commercial paper rate of
4.995.47
% plus
0.75
%, for a combined rate of
5.746.22
%.
 
At
December 31, 2022,30, 2023, the interest rate on borrowings under this facility was
 
based on the asset-backed commercial
paper rate of
4.585.67
% plus
0.75
%, for a combined rate of
5.336.42
%.
If our accounts receivable collection pattern changes due to customers
 
either paying late or not making payments,
our ability to borrow under this facility may be reduced.
We are required to pay a commitment fee of
30
 
to
35
 
basis points depending upon program utilization.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
1821
Note 89 – Income Taxes
For the three months ended April 1, 2023March 30, 2024 our effective tax rate was
23.825.6
%, compared to
24.023.8
% for the prior year
period.
 
The difference between our effective tax rate and the federal statutory tax rate primarily
 
relates to state and
foreign income taxes and interest expense as well as stock-based compensation.expense.
The Organization of Economic Co-Operation and Development (OECD) issued
technical and administrative
guidance on Pillar Two Model Rules in December 2021, which provides for a global minimum tax rate on the
earnings of large multinational businesses on a country-by-country basis.
Effective January 1, 2024, the minimum
global tax rate is 15% for various jurisdictions pursuant to the Pillar Two framework.
Future tax reform resulting
from these developments may result in changes to long-standing tax principles,
which may adversely impact our
effective tax rate going forward or result in higher cash tax liabilities.
As of March 30, 2024, the impact of the
Pillar Two Rules to our financial statements was immaterial.
As we operate in jurisdictions which have adopted
Pillar Two,
we are continuing to analyze the implications to effectively manage the impact
for 2024 and beyond.
The total amount of unrecognized tax benefits, which are included in
 
“other liabilities” within our condensed
consolidated balance sheets, as of April 1, 2023March 30, 2024 and December 31, 202230, 2023, was
 
was $
95113
 
million and $
94115
 
million,
respectively, of which $
80106
 
million and $
80107
 
million, respectively, would affect the effective tax rate if recognized.
 
It is possible that the amount of unrecognized tax benefits will
 
change in the next 12 months, which may result in a
material impact on our condensed consolidated statements of income.
All tax returns audited by the IRS are officially closed through 2018.2019.
 
The tax years subject to examination by the
IRS include years 20192020 and forward.
 
In addition, limited positions reported in the 2017 tax year are subject
 
to IRS
examination.
During the quarter ended December 25, 2021, we were notified by
the IRS that tax year 2019 was
selected for 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 included as a component of the provision
for taxes was $
1
 
million and $
1
million for the three months ended March 30, 2024 and April 1, 2023, and $
1
 
million for the three
months ended March 26, 2022.respectively.
 
The total amount of accrued
interest is included in “other
liabilities,” and was $
1317
million as of April 1, 2023March 30, 2024 and $
1216
 
million as of December 31, 2022.
30, 2023.
 
The amount of penalties accrued for during
the periods presented
were not material to our condensed
consolidated financial
statements statements.
.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
1922
Note 910 – Plan of Restructuring
On August 1, 2022, we committed to a restructuring plan focused on
 
funding the priorities of the BOLD+1 strategic
plan, and
streamlining operations and other initiatives to increase efficiency.
 
We expectrevised our previous expectations of
completion and we have extended this initiative to extend through
2023. the end of 2024.
 
We are currently unable in good faith to
make a determination of an estimate of the amount or range of amounts
amounts expected to be incurred in connection with
these activities, both with
respect to each major type of cost associated
associated therewith and with respect to the total cost, or an
estimate of
the amount or range of amounts that will
result in future
cash expenditures.
During the three months ended March 30, 2024 and April 1, 2023, we
recorded restructuring costs of $
10
 
million
and $
30
 
million, respectively.
The restructuring costs for these periods primarily related to severance
and
severance and employee-related costs, accelerated amortization of right-of-use
 
lease assets and fixed assets, and
other lease exit costs.
This amount also includes $
1costs.
 
million related to the disposal of an unprofitable U.S. business,
initiated during 2022 and completed during the three months ended April
1, 2023.
Restructuring costs recorded for the three months ended March 30, 2024
and April 1, 2023, consisted
of the following (there were
nofollowing:
restructuring costs for the three months ended March 26, 2022):
Three Months Ended March 30, 2024
Health Care
Distribution
Technology
and
Value-Added
Services
Total
Severance and employee-related costs
$
6
$
1
$
7
Accelerated depreciation and amortization
1
-
1
Exit and other related costs
2
-
2
Total restructuring
costs
$
9
$
1
$
10
Three Months Ended April 1, 2023
Health-CareHealth Care
Distribution
Technology
 
and
Value-Added
Services
Total
Severance and employee-related costs
$
17
$
3
$
20
Accelerated depreciation and amortization
7
-
7
Exit and other related costs
1
1
2
Loss on disposal of a business
1
-
1
Total restructuring
 
costs
$
26
$
4
$
30
The following table summarizes,
 
by reportable segment, the activity related to the liabilities associated
 
with our
restructuring initiatives
 
for the periodthree months ended April 1, 2023.March 30, 2024.
 
The remaining accrued balance of
restructuring costs as of March 30, 2024, which primarily relates
to severance and employee-related costs, is
of April 1, 2023 is included in accrued expenses: other within our condensed consolidated
 
balance sheets.
Liabilities related to exited
leased facilities are recorded within our current and non-current operating
lease liabilities within our condensed
consolidated balance sheet.sheets.
Technology
 
and
Health Care
Value-Added
Distribution
Services
Total
Balance, December 31, 2022
30, 2023
$
2122
$
31
$
2423
Restructuring costs
269
41
3010
Non-cash asset impairment and accelerated
depreciation and amortization of right-of-use lease
assets and other long-lived assets
(7)(1)
-
(7)(1)
Cash payments and other adjustments
(14)(11)
(3)(1)
(17)(12)
Balance, April 1, 2023
March 30, 2024
$
2619
$
41
$
3020
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
2023
Note 1011 – Legal Proceedings
Henry Schein, Inc. has been named as a defendant in multiple opioid related
 
related lawsuits (currently less than one-
hundred and seventy-five (
175
); one or more of Henry Schein, Inc.’s subsidiaries is also named as a defendant in a
number of those cases).
 
Generally, the lawsuits allege that the manufacturers of prescription opioid drugs engaged
in a false advertising campaign to expand the market for such drugs and
 
their own market share and that the entities
in the supply chain (including Henry Schein, Inc. and its affiliated companies)subsidiaries) reaped
 
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 DCH Health Care Authority, et al. in Alabama state court, which
has been designated a bellwether with
eight
of
thirty-eight
plaintiffsis currently set for a jury trial on July 24, 2023; 8, 2024; the action filed by Mobile
County Board of Health, et al. in Alabama
state court, which has been set for a jury trial on August 12, 2024;
and the
action filed by Florida Health Sciences
Center, Inc. (and
3825
other hospitals located throughout the State of Florida)
in Florida state court,
which is currently
scheduled for a jury trial
in MaySeptember 2025.
 
Of Henry Schein’s 20222023 net sales
of approximately $
12.612.3
 
billion, from continuing operations,
sales of opioids represented
less than
two-tenths
four-tenths of 1
percent.
 
Opioids represent a negligible part of our
business.
 
We intend to defend ourselves vigorously against
these actions.
In August 2022, Henry Schein received a Grand Jury Subpoena from the United
 
States Attorney’s Office for the
Western District of Virginia,
 
seeking documents in connection with an investigation of possible
 
violations of the
Federal Food, Drug & Cosmetic Act by Butler Animal Health Supply, LLC (“Butler”), a former subsidiary of
Henry Schein.
 
The investigation relates to the sale of veterinary prescription drugs
 
to certain customers.
 
In
October 2022, Henry Schein received a second Grand Jury Subpoena
 
from the United States Attorney’s Office for
the Western District of Virginia.
 
The October 2022 Subpoena seeks documents relating to payments Henry
 
Schein
received from Butler or Covetrus, Inc. (“Covetrus”).
 
Butler was spun off into a separate company and became a
subsidiary of Covetrus in 2019 and is no longer owned by Henry Schein.
 
We are cooperating with the
investigation.
On January 18, 2024, a putative class action was filed against the Company
in the U.S. District Court for the
Eastern District of New York (“EDNY”), Case No. 24-cv-387 (the “Cruz-Bermudez Action”), based on the
October 2023 cyber incident described in
.
On January 26, 2024, a second putative class
action was filed against the Company based on the cyber incident, also
in the EDNY,
Case No. 24-cv-550 (the
“Depperschmidt Action”).
On February 12, 2024, the Depperschmidt Action was voluntarily dismissed
without
prejudice.
On February 16, 2024, an amended complaint was filed in
the Cruz-Bermudez Action with additional
plaintiffs’ counsel from the Depperschmidt Action and an additional new plaintiff.
Plaintiffs in the Cruz-Bermudez Action seek to represent a class of all individuals
whose personally identifying
information and personal health information was compromised by
the incident.
Plaintiffs generally claim to have
been harmed by alleged actions and/or omissions by the Company
in connection with the incident and that the
Company made deceptive public statements regarding privacy and data protection.
Plaintiffs assert a variety of
claims seeking monetary damages, injunctive relief, costs and attorneys’
fees, and other related relief.
On March
22, 2024, plaintiffs voluntarily withdrew two of their five causes of action.
On April 8, 2024, the court denied the
Company’s motion to dismiss the remaining claims.
The case remains pending.
We intend to defend ourselves
vigorously against this action.
Henry Schein, Inc. and its affiliate, North American Rescue, LLC (“NAR”), have
been named as defendants in a
qui tam lawsuit brought under the federal False Claims Act (“FCA”), in
an action entitled
Russ and Murphy ex rel.
United States v. North American Rescue, LLC et al.
; Case No. 21-cv-04238, filed in the United States District
Court
for the Eastern District of Pennsylvania.
The case was filed under seal in 2021 by two relators (Corey
Russ and
Chris Murphy) who worked for one of NAR’s competitors.
Relators also name C-A-T Resources, LLC (“CAT-R”)
as a defendant.
CAT
-R manufactures one of the products at issue in the case (the
combat application tourniquet, or
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
(unaudited
)
24
“CAT”).
After the Department of Justice declined to intervene, the case was unsealed,
and Relators filed their first
amended complaint in November 2023.
In response to motions to dismiss filed by Henry Schein, NAR
and CAT-
R, Relators requested and obtained leave to file their Second Amended
Complaint on April 24, 2024.
Relators’
FCA claims are based on allegations that NAR and Henry Schein made false
representations and certifications in
connection with, and sold and submitted false claims for payment to the federal
government for, various medical
products that Relators contend violated certain “Buy American”
laws (e.g., the Berry Amendment and Trade
Agreements Act of 1979) and/or were not properly sterilized as noted
on the products’ packaging, and thus
misbranded.
These products include the CAT,
syringes, compressed gauze, tracheostomy kits, hypothermia
blankets, eye, ear, nose and throat kits, and trauma dressing.
Relators allege Henry Schein controlled and
supervised NAR’s alleged misconduct for a period of time.
Relators seek three times the amount of damages to be
proved at trial, statutory civil penalties, reasonable expenses, attorneys’
fees and costs, and prejudgment
interest.
We intend to defend ourselves vigorously against this action.
From time to time, we may become a party to other legal proceedings,
 
including, without limitation, product
liability claims, employment matters, commercial disputes, governmental
 
inquiries and investigations (which may
in some cases involve our entering into settlement arrangements or consent
 
decrees), and other matters arising out
of the ordinary course of our business.
 
While the results of any legal proceeding cannot be predicted with certainty,
in our opinion none of these other pending matters are currently
 
anticipated to have a material adverse effect on our
consolidated financial position, liquidity or results of operations.
As of April 1, 2023,March 30, 2024, we had accrued our best estimate of potential losses
 
relating to claims that were probable to
result in liability and for which we were able to reasonably estimate a
 
loss.
 
This accrued amount, as well as related
expenses, was not material to our financial position, results of operations
 
or cash flows.
 
Our method for
determining estimated losses considers currently available
 
facts, presently enacted laws and regulations and other
factors, including probable recoveries from third parties.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
2125
Note 1112 – Stock-Based Compensation
Stock-based awards are provided to certain employees under the terms of
our 2020 Stock Incentive
Plan and to non-employee
non-employee directors under the terms of our 20152023 Non-Employee Director
Stock Incentive Plan
(formerly known as the 2015 Non-
Employee Director Stock Incentive Plan) (together, the
“Plans” “Plans”).
 
The Plans are administered by the Compensation
Committee of the Board
of Directors (the
“Compensation “Compensation Committee”).
 
Historically, equity-based awards to our
employees have been granted solely in the
form of time-based and performance-based
restricted stock units
(“RSUs”)
with the exception of our 2021 plan year
in which non-qualified
stock options were issued in place of
performance-based
RSUs.
In RSUs and in 2022, when we granted time-time-based and
based and performance-based RSUs, as well as non-qualifiednon-
qualified stock
options.
 
For our 2023 plan year, we returned to
granting our employees equity-based awards solely
in the form of time-based
and performance-based RSUs.
 
Our
non-employee directors receive equity-based awards
solely in the form
of time-based RSUs.
RSUs are stock-based awards granted to recipients with specified vesting provisions.
 
In the case of RSUs, common
stock is delivered on or following satisfaction of vesting conditions.
 
We issue RSUs to employees that primarily
vest (i) solely based on the recipient’s continued service over time, primarily with
four
-year cliff vesting and/or (ii)
based on achieving specified performance measurements and the recipient’s continued service over time, primarily
with
three
-year cliff vesting.
 
RSUs granted to our non-employee directors primarily are granted
withinclude
12
-month
cliff vesting.
 
For these RSUs, we recognize the cost as compensation expense on a straight-line
 
a straight-line basis.
With respect to time-basedFor all RSUs, we estimate the fair value based on our closing stock
price on the date of
grant.grant date.
 
With respect to
performance-based RSUs, the number of shares that ultimately vest and are
 
are received by the
recipient is based upon
our performance as measured against specified
targets over a specified period, as
determined by the Compensation
Committee.
 
Although there is no guarantee that performance targets will be
achieved, we
estimate the fair value of
performance-based RSUs based on
our closing stock price at time of grant.
Each of the Plans provide for certain adjustments to the performance
 
measurement in connection with awards under
the Plans.
 
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, amortization expense recorded for acquisition-related intangible assets (solely with
respect to performance-based RSUs granted in the 2023 and 2024 plan years),
certain litigation settlements or
payments, if any, changes in accounting principles or in
applicable laws or regulations, changes in income tax rates
in certain
markets, foreign exchange fluctuations, the
financial impact
either positive or negative, of the difference
in projected earnings
generated by COVID-19 test kits
(solely (solely with respect
to performance-based RSUs granted in
the 2022 and
2023 plan years) and impairment charges
(solely (solely with respect to performance-based
RSUs granted in
the 2023 and 2024 plan
year) years), and unforeseen events or circumstances
circumstances affecting us.
Over the performance period, the number of shares of common stockRSUs that will ultimately vest
 
ultimately vest and be issued and the related
related compensation expense is adjusted upward or downward based upon our
 
estimation of achieving such performance
performance targets.
 
The ultimate number of shares delivered to recipients and
the related compensation
cost
recognized as an
expense will beis based on our actual performance metrics
as defined under
the Plans.2020 Stock Incentive Plan.
Stock options are awards that allow the recipient to purchase shares of our
 
common stock after vesting at a fixed
price following
vestingset at the time of the stock options.grant.
 
Stock options were granted at an exercise price equal to our
closing stock
price on the
date of grant.
 
Stock options issued in 2021 and 2022 vest
one-third
per year based
on the recipient’s continued
service, subject to the terms and conditions of the 2020 Stock Incentive Plan,
 
are fully vested
three years
 
from the
grant date and have a contractual term of
ten years
 
from the grant date, subject to earlier termination of the term and
term acceleration upon certain events.
 
Compensation expense for these stock options is recognized using
 
using a graded
vesting method.
 
We estimated theestimate grant date fair value of stock options using the Black-Scholes valuation model.
 
During the three months
ended April 1, 2023March 30, 2024, we did
no
t grant any stock options.
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
2226
Our accompanying condensed consolidated statements of income reflect
pre-tax share-based compensation
expense of $
of8
million
and $
10
 
million ($
7
million after-tax) and $
12
million ($
9
million after-tax) for the three months ended March 30, 2024 and April 1, 2023
and March 26, 2022, respectively.2023.
Total unrecognized compensation cost related to unvested awards as of April 1, 2023March 30, 2024 was $
119120
 
million, which is
expected to be recognized over a weighted averageweighted-average period of approximately
2.7
 
years.
Our accompanying condensed consolidated statements of cash flows present our
 
our stock-based compensation expense as a
as anreconciling adjustment to reconcilebetween net income toand net cash provided by operating activities
 
activities for all periods presented.
 
In
the accompanying consolidated statements ofThere were no cash flows, there were
no benefits associated with tax deductions in
excess of
recognized compensation as a cash inflow from financing
activities for the three
months ended March 30, 2024 and April 1, 2023.
2023 and March 26, 2022, respectively.
We have not declared cash dividends on our stock in the past and we do not anticipate declaring cash dividends in
the foreseeable future.
 
The expected stock price volatility is based on implied volatilities
 
from traded options on
our stock, historical volatility of our stock and other factors.
 
The risk-free interest rate is based on the U.S.
Treasury yield curve in effect at the time of grant in conjunction with consideringthat most closely aligns to the expected life of options.
 
The
six
-year-
year expected life of the options was determined using the simplified
 
method for estimating the expected term as
as permitted under SABStaff Accounting Bulletin Topic 14.
Estimates of fair value are not intended to predict actual future events or
the
value ultimately realized by recipients of stock options, and subsequent
events are not indicative of the
reasonableness of the original estimates of fair value made by us.
The following table summarizes the stock option activity duringfor the three
 
months ended April 1, 2023:
Stock Options
Weighted Average
Weighted Average
Aggregate
Exercise
Remaining Contractual
Intrinsic
Shares
Price
Life (in years)
Value
Outstanding at beginning of period
1,117,574
$
71.38
Granted
-
-
Exercised
(10,897)
62.71
Forfeited
(5,911)
77.31
Outstanding at end of period
1,100,766
$
71.44
8.3
$
13
Options exercisable at end of period
572,132
$
68.11
March 30, 2024:
Weighted Average
Weighted Average
Aggregate
Number of
Exercise
Remaining Contractual
Intrinsic
Options
Price
Life (in years)
Value
Vested
or expected to vest
520,781
$
75.22
8.5
$
4
The following tables summarize the activity of our unvested RSUs for
the three months ended April 1, 2023:
Time-Based Restricted Stock Units
Performance-Based Restricted Stock Units
Weighted Average
Weighted Average
Grant Date Fair
Intrinsic Value
Grant Date Fair
Intrinsic Value
Shares/Units
Value Per Share
Per Share
Shares/Units
Value Per Share
Per Share
Outstanding at beginning of period
1,756,044
$
66.59
520,916
$
60.23
Granted
395,750
77.75
465,260
79.66
Vested
(387,302)
61.13
(627,596)
60.66
Forfeited
(34,843)
68.16
(39,463)
74.48
Outstanding at end of period
1,729,649
$
70.38
$
81.54
319,117
$
68.96
$
81.54
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock Options
Weighted Average
Weighted Average
Aggregate
Exercise
Remaining Contractual
Intrinsic
Shares
Price
Life (in years)
Value
Outstanding at beginning of period
1,078,459
$
71.46
Granted
-
-
Exercised
(21,570)
62.71
Forfeited
(897)
82.62
Outstanding at end of period
1,055,992
$
71.63
7.3
$
8
Options exercisable at end of period
908,836
$
69.49
Weighted Average
Weighted Average
Aggregate
Number of
Exercise
Remaining Contractual
Intrinsic
Options
Price
Life (in years)
Value
Expected to vest
147,110
$
84.84
8.0
$
-
The following tables summarize the activity of our unvested RSUs for
the three months ended March 30, 2024:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Time-Based Restricted Stock Units
Performance-Based Restricted Stock Units
Weighted
Weighted
Average
Intrinsic
Average
Intrinsic
Grant Date Fair
Value
Grant Date Fair
Value
Shares/Units
Value Per Share
Per Share
Shares/Units
Value Per Share
Per Share
Outstanding at beginning of period
1,655,393
$
70.34
208,742
$
78.02
Granted
432,350
76.56
450,333
76.81
Vested
(307,839)
62.51
(6,432)
63.01
Forfeited
(6,021)
81.48
(6,431)
83.07
Outstanding at end of period
1,773,883
$
73.19
$
75.52
646,212
$
75.68
$
75.52
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
2327
Note 1213 – Redeemable Noncontrolling Interests
Some minority stockholders in certain of our subsidiaries have the right,
 
at certain times, to require us to acquire
their ownership interest in those entities at fair value.
 
Accounting Standards Codification Topic 480-10 is
applicable for noncontrolling interests where we are or may be required
 
to purchase all or a portion of the
outstanding interest in a consolidated subsidiary from the noncontrolling
 
interest holder under the terms of a put
option contained in contractual agreements.
 
The components of the change in the redeemable noncontrolling
interests for the three months ended April 1, 2023March 30, 2024 and the year ended December
 
31, 202230, 2023 are presented in the
following table:
April 1,
March 30,
December 31,30,
2024
2023
2022
Balance, beginning of period
$
864
$
576
$
613
Decrease in redeemable noncontrolling interests due to acquisitions of
noncontrolling interests in subsidiaries
(8)(94)
(31)(19)
Increase in redeemable noncontrolling interests due to business
acquisitions
3-
4326
Net income attributable to redeemable noncontrolling interests
42
216
DividendsDistributions declared,
net of capital contributions
(4)(6)
(21)(19)
Effect of foreign currency translation gain (loss) attributable to
redeemable noncontrolling interests
2(10)
(6)5
Change in fair value of redeemable securities
(3)42
(4)(11)
Balance, end of period
$
570798
$
576864
Note 1314 – Comprehensive Income
Comprehensive income includes certain gains and losses that, under U.S.
 
GAAP,
 
are excluded from net income asand
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:
April 1,
March 30,
December 31,30,
2024
2023
2022
Attributable to Redeemableredeemable noncontrolling interests:
Foreign currency translation adjustment
$
(35)(42)
$
(37)(32)
Attributable to noncontrolling interests:
Foreign currency translation adjustment
$
(1)
$
(1)
Attributable to Henry Schein, Inc.:
Foreign currency translation adjustment
$
(213)(232)
$
(236)(188)
Unrealized gainloss from foreign currency hedging activities
2(2)
5(13)
Pension adjustment loss
(2)(5)
(2)(5)
Accumulated other comprehensive loss
$
(213)(239)
$
(233)(206)
Total Accumulated
 
other comprehensive loss
$
(249)(282)
$
(271)(239)
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
(unaudited
)
28
The following table summarizes the components of comprehensive income, net
of applicable taxes as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
March 30,
April 1,
2024
2023
Net income
$
98
$
128
Foreign currency translation gain (loss)
(54)
25
Tax effect
-
-
Foreign currency translation gain (loss)
(54)
25
Unrealized gain (loss) from hedging activities
15
(4)
Tax effect
(4)
1
Unrealized gain (loss) from hedging activities
11
(3)
Comprehensive income
$
55
$
150
Our financial statements are denominated in U.S. Dollars.
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 three months ended March 30, 2024
and three months ended April 1, 2023 was
primarily due to changes in foreign currency exchange rates of the Euro,
Brazilian Real, British Pound, Australian
Dollar, Swiss Franc and Canadian Dollar.
The hedging gain (loss) during the three months ended March 30, 2024, and
April 1, 2023 was attributable to a net
investment hedge.
The following table summarizes our total comprehensive income, net of
applicable taxes as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
March 30,
April 1,
2024
2023
Comprehensive income attributable to
Henry Schein, Inc.
$
60
$
141
Comprehensive income attributable to
noncontrolling interests
3
3
Comprehensive income (loss) attributable to
Redeemable noncontrolling interests
(8)
6
Comprehensive income
$
55
$
150
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
24
The following table summarizes the components of comprehensive income, net
of applicable taxes as follows:
29
Three Months Ended
April 1,
March 26,
2023
2022
Net income
$
128
$
186
Foreign currency translation gain
25
3
Tax effect
-
-
Foreign currency translation gain
25
3
Unrealized gain (loss) from foreign currency hedging activities
(4)
2
Tax effect
1
(1)
Unrealized gain (loss) from foreign currency hedging activities
(3)
1
Comprehensive income
$
150
$
190
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 during the three months ended April 1,
2023 and three months ended March 26,
2022 was primarily due to changes in foreign currency exchange
rates of the Euro, British Pound, Australian
Dollar, Brazilian Real, New Zealand Dollar and Canadian Dollar.
The following table summarizes our total comprehensive income, net of
applicable taxes as follows:
Three Months Ended
April 1,
March 26,
2023
2022
Comprehensive income attributable to
Henry Schein, Inc.
$
141
$
184
Comprehensive income attributable to
noncontrolling interests
3
1
Comprehensive income attributable to
Redeemable noncontrolling interests
6
5
Comprehensive income
$
150
$
190
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
(unaudited
)
25
Note 1415
 
–
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
and upon
exercise of stock options using the treasury stock method in periods
 
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
March 30,
April 1,
March 26,2024
2023
2022Basic
Basic
128,720,661
131,365,789
137,296,581
Effect of dilutive securities:
Stock options and restricted stock units
1,048,919
1,674,097
1,940,891Diluted
Diluted
129,769,580
133,039,886
139,237,472
The number of antidilutive securities that were excluded from the calculation
 
of diluted weighted average common
shares outstanding are as follows:
Three Months Ended
April 1,
March 26,
2023
2022
Stock options
422,190
76,597
Restricted stock units
18,305
70,923
Total anti-dilutive
securities excluded from EPS computation
440,495
147,520
 
 
 
 
 
 
 
 
Three Months Ended
March 30,
April 1,
2024
2023
Stock options
419,139
422,190
Restricted stock units
245,667
18,305
Total anti-dilutive
securities excluded from earnings per share computation
664,806
440,495
Note 16 – Supplemental Cash Flow Information
Cash paid for interest and income taxes was:
Three Months Ended
March 30,
April 1,
2024
2023
Interest
$
26
$
13
Income taxes
21
21
For the three months ended March 30, 2024 and April 1, 2023, we had $
15
million and $
(4)
million of non-cash net
unrealized gains (losses) related to hedging activities, respectively.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
2630
Note 15 – Supplemental Cash Flow Information
Cash paid for interest and income taxes was:
Three Months Ended
April 1,
March 26,
2023
2022
Interest
$
13
$
8
Income taxes
21
21
During the three months ended April 1, 2023 and March 26, 2022, we
had $
(4)
million and $
2
million of non-cash
net unrealized gains (losses) related to foreign currency hedging activities,
respectively.
Note 1617 – Related Party Transactions
In connection with the formation of Henry Schein One, LLC, our joint venture
 
with Internet Brands, which was
formed on July 1, 2018, we entered into a
ten-year
 
royalty agreement with Internet Brands whereby we will pay
Internet Brands approximately $
31
 
million annually for the use of their intellectual property.
 
During the three
months ended March 30, 2024 and April 1, 2023, and March 26, 2022, we recorded $
8
 
million and $
98
 
million, respectively, in
connection with costs related to this royalty agreement.
 
As of April 1, 2023March 30, 2024 and December 31, 2022,30, 2023, Henry Schein
Schein One, LLC had a net payable balance due to Internet Brands of $
123
 
million and $
81
 
million, respectively, comprised
comprised of amounts related to results of operations and the royalty agreement.
 
The components of this payable
are recorded
within accrued expenses: other within our condensed consolidated
balance sheets.
During our normal course of business, weWe have interests in entities that we
account for under the equity accounting
method.
 
DuringIn our normal course of
business, during the three months ended March 30, 2024 and April 1, 2023, and March 26, 2022,
 
we recorded net sales of $
812
 
million and
and $
128
 
million respectively, to such entities.
 
During the three months ended March 30, 2024 and April 1, 2023, and March 26, 2022,
 
we
purchased $
23
 
million and $
42
 
million respectively, from such entities.
 
At April 1, 2023March 30, 2024 and December 31, 2022, we30, 2023,
we had an aggregate of $
3431
 
million and $
3632
 
million, respectively, due from our equity affiliates, and $
6
 
million and
$
65
million, respectively, due to our equity affiliates.
Certain of our facilities related to our acquisitions are leased from employees
 
and minority shareholders.
 
These
leases are classified as operating leases and have a remaining lease term
 
ranging from less than
one yearmonth
 
to
917
years
.years.
 
As of April 1, 2023,March 30, 2024, current and non-current liabilities
associated with related
party operating leases were
$
45
million and $
1522
 
million, respectively.
 
RelatedAt March 30, 2024 related party leases represented
6.16.7
% and
5.68.2
% of the
total current and non-current operating lease liabilities, respectively.
At December 30, 2023 related party leases
represented
6.3
% and
7.4
% of the total current and non-
currentnon-current operating lease liabilities.
liabilities, respectively.
2731
ITEM 2.
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 
Cautionary Note Regarding Forward-Looking Statements
In accordance with the “Safe Harbor” provisions of the Private Securities
 
Litigation Reform Act of 1995, we
provide the following cautionary remarks regarding important factors
 
that, among others, could cause future results
to differ materially from the forward-looking statements, expectations and assumptions
 
expressed or implied
herein.
 
All forward-looking statements made by us are subject to
 
risks and uncertainties and are not guarantees of
future performance.
 
These forward-looking statements involve known and unknown
 
risks, uncertainties and other
factors that may cause our actual results, performance and achievements
 
or industry results to be materially
different from any future results, performance or achievements expressed or implied by such
 
forward-looking
statements.
 
These statements are generally identified by the use of such
 
terms as “may,” “could,” “expect,”
“intend,” “believe,” “plan,” “estimate,” “forecast,” “project,” “anticipate,”
 
“to be,” “to make” or other comparable
terms.
 
Factors that could cause or contribute to such differences include, but are not limited
 
to, those discussed in
the documents we file with the Securities and Exchange Commission
 
(SEC), including our Annual Report on Form
10-K.
 
Forward looking statements include the overall impact of the Novel Coronavirus
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 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 supply chain disruptions will adversely 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
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
test sales, demand and inventory levels 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
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, including the failure
to achieve anticipated synergies/benefits, as well
as significant demands on our operations, information systems,
legal, regulatory, compliance, financial and human
resources functions in connection with acquisitions, dispositions and
joint ventures; certain provisions
in our
governing documents that may discourage third-party acquisitions
of us; adverse
changes in supplier rebates or
or other purchasing incentives; risks related to the sale of corporate brand products;
 
security risks associated with our
information systems and technology products and services, such as
cyberattacks or other privacy or data security
breaches (including the October 2023 incident); effects of a highly competitive (including, without
limitation,
(including, without limitation, competition from third-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
 
costing structures; increases in shipping costs
for our products or other service issues with our third-party shippers; general
 
global and domestic macro-economic
and political conditions, including inflation, deflation, recession, fluctuationsongoing
 
wars, fluctuations in energy pricing and
the value of the
U.S. dollar as compared to foreign currencies, and changes
to other economic indicators,
indicators, international trade
agreements, potential trade barriers and terrorism; geopolitical
wars; failure to comply with
existing
and future regulatory
requirements; risks associated with the EU Medical
Device Regulation; failure to
to comply with laws and regulations
relating to health care fraud or other
laws and regulations;
failure to comply with
laws and regulations relating to
the collection, storage and processing of
sensitive personal information
or standards
in electronic health records or
transmissions; changes in tax legislation;
risks related to product liability, intellectual
property and other claims;
litigation risks; risks associated with customs policies
 
or legislative import restrictions; risks associated
with disease outbreaks, epidemics, pandemics (such as the COVID-19
pandemic), or similar wide-spread public
health concerns and other natural or man-made disasters; risks associated with our
global operations; litigation
risks; new or unanticipated litigation developments and the status
of litigation
matters; risks associated
with customs policies or legislative import restrictions; cyberattacks
or other privacy or data security breaches; risks
associated with our global operations; our dependence on our
senior management,
employee hiring and retention,
and our relationships
with customers, suppliers and
manufacturers;
and disruptions in financial markets.
 
The order
in which these factors appear should not be
construed to indicate their
relative importance or priority.
28
We caution that these factors may not be exhaustive and that many of these factors are beyond our ability to control
or predict.
 
Accordingly, any forward-looking statements contained herein should not be relied upon as a prediction
of actual results.
 
We undertake no duty and have no obligation to update forward-looking statements except as
required by law.
32
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 NewsroomAbout Media Center page
of our website.
Recent Developments
DuringWhile the year ended December 31, 2022 weU.S. economy has recently experienced a decreaseinflationary
 
inpressures and strengthening of the salesU.S. dollar, their
impacts have not been material to our results of PPE and COVID-19 test kits.
During the three months ended April 1, 2023, we continued to experience
a decrease in the sales of PPE and
COVID-19 test kits compared with the same period in the prior
year and we expect further decreases in sales in
2023 compared to the prior year.
The impact from inflation, including manufacturer price increases excluding PPE
products, was slightly more
pronounced in Europe than in North America.operations.
 
Though inflation impacts both our revenues and costs,
the
depth and
breadth of our product portfolio often allows us to offer lower-cost
national brand solutions or
corporate brand
alternatives to our more price-sensitive customers who are unable
 
are unwilling 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.
Cyber Incident
In October 2023 Henry Schein experienced a cyber incident that primarily
 
There is an ongoing risk thataffected the consequencesoperations of our North
American and European dental and medical distribution businesses.
Henry Schein One, our practice management
software, revenue cycle management and patient relationship management
solutions business, was not affected, and
our manufacturing businesses were mostly unaffected.
On November 22, 2023, we experienced a disruption of our
ecommerce platform and related applications, which has since been
remediated.
During the three months ended March 30, 2024, we continued
to experience a residual impact of the COVID-19cyber events
noted above relating primarily to decreased sales to episodic customers (customers
 
pandemic may againthat had generally registered a
less continuous level of demand pre-incident).
We have a number of programs planned and underway focused on
material adverse effect on our business, results of operationsre-establishing these customers.
We maintain cyber insurance, subject to certain retentions and cash flows and maypolicy limitations.
 
result inWith respect to the October 2023
cyber incident, we have a material adverse
effect on our financial condition and liquidity.
However, the extent of the potential impact cannot be reasonably
estimated at this time.$60 million insurance policy, following a $5 million retention.
2933
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 22,000approximately 25,000 people (of which approximately 10,700
are
13,000 are based outside of the United States) and have operations or
affiliates in 3233 countries
and territories.
 
Our broad
broad global footprint has evolved over time through our organic success as well as
 
through contribution from strategic
strategic acquisitions.
We
have established strategically located distribution centers around
 
the world to enable us to better serve our
customers and increase our operating efficiency.
 
This infrastructure, together with broad product and service
offerings at competitive prices, and a strong commitment to customer service, enables
 
us to be a single source of
supply for our customers’ needs.
While our primary go-to-market strategy is in our capacity as a distributor, we also market and sell our own
corporate brand portfolio of cost-effective, high-quality consumable merchandise products,
 
including in vitro
diagnostic devices, manufacture certain
dental specialty products in
the areas of implants, orthodontics and
endodontics,
manufacture drug products, and repackage/relabel prescription drugs
drugs and/or devices.
 
We
have
achieved scale in these global businesses primarily through acquisitions, as
 
as
manufacturers of these products
typically do not utilize a distribution channel
to serve customers.
We
conduct our business through two reportable segments: (i) health
 
care distribution and (ii) technology and
value-added services.
 
These segments offer different products and services to the same customer base.
 
Our global
dental businesses serve office-based dental practitioners, dental laboratories, schools, government
 
and other
institutions.
 
Our medical businesses serve physician offices, urgent care centers, ambulatory care sites,
 
emergency
medical technicians, dialysis centers, home health, federal and state governments
 
and large enterprises, such as
group practices, and integrated delivery networks, among other providers
 
across a wide range of specialties.
 
The health care distribution reportable segment, combining our global dental and
 
medical operating segments,
distributes consumable products, small equipment, laboratory products, large equipment, equipment
 
repair services,
branded and generic pharmaceuticals, vaccines, surgical products, dental specialty
 
products (including implant,
orthodontic and endodontic products), diagnostic tests, infection-control products,
 
PPE products, vitamins and vitamins.
orthopedic implants.
 
Our global technology and value-added services business provides software, technology
 
and other value-added
services to health care practitioners.
 
Our technology business offerings include practice management software
systems for dental and medical practitioners.
 
Our value-added practice solutions include practice consultancy,
education, revenue cycle management and financial services on a non-recourse
 
basis, e-services, practice
technology, network and hardware services, as well as consulting, and continuing education services for
practitioners.
A key element to grow closer to our customers is our One Schein initiative, which
 
is a unified go-to-market
approach that enables practitioners to work synergistically with our supply chain,
 
equipment sales and service and
other value-added services, allowing our customers to leverage the
 
combined value that we offer through a single
program.
 
Specifically, One Schein provides customers with streamlined access to our comprehensive offering of
national brand products, our corporate brand products and proprietary specialty
 
products and solutions (including
implant, orthodontic and endodontic products).
 
In addition, customers have access to a wide range of services,
including software and other value-added services.
3034
Industry Overview
In recent years, the health care industry has increasingly focused on cost containment.
 
This trend has benefited
distributors capable of providing a broad array of products and services at low
 
prices.
 
It also has accelerated the
growth of HMOs, group practices, other managed care accounts and collective buying
 
groups, which, in addition to
their emphasis on obtaining products at competitive prices, tend to favor distributors
 
capable of providing
specialized management information support.
 
We
believe that the trend towards cost containment has the potential
to favorably affect demand for technology solutions, including software, which can
 
enhance the efficiency and
facilitation of practice management.
Our operating results in recent years have been significantly affected by strategies
 
and transactions that we
undertook to expand our business, domestically and internationally, in part to address significant changes in the
health care industry, including consolidation of health care distribution companies, health care reform, trends
toward managed care, cuts in Medicare and collective purchasing arrangements.
Industry Consolidation
The health care products distribution industry, as it relates to office-based health care practitioners, is fragmented
and diverse.
 
The industry ranges from sole practitioners working out of
 
relatively small offices to group practices
or service organizations ranging in size from a few practitioners to a large number of practitioners who have
combined or otherwise associated their practices.
Due in part to the inability of office-based health care practitioners to store and manage
 
large quantities of supplies
in their offices, the distribution of health care supplies and small equipment to office-based health
 
care practitioners
has been characterized by frequent, small quantity orders, and a need for rapid,
 
reliable and substantially complete
order fulfillment.
 
The purchasing decisions within an office-based health care practice are typically
 
are typically made by the
practitioner or an administrative assistant.
 
Supplies and small equipment are generally purchased from more
 
than
one distributor, with one generally serving as the primary supplier.
The trend of consolidation extends to our customer base.
 
Health care practitioners are increasingly seeking to
partner, affiliate or combine with larger entities such as hospitals, health systems, group practices or physician
hospital organizations.
 
In many cases, purchasing decisions for consolidated groups
 
are made at a centralized or
professional staff level; however, orders are delivered to the practitioners’ offices.
We
believe that consolidation within the industry will continue to
 
result in a number of distributors, particularly
those with limited financial, operating and marketing resources, seeking to
 
combine with larger companies that can
provide growth opportunities.
 
This consolidation also may continue to result in distributors seeking
 
to acquire
companies that can enhance their current product and service offerings or provide
 
opportunities to serve a broader
customer base.
Our approach to acquisitions and joint ventures has been to expand our role as
 
a provider of products and services
to the health care industry.
 
This trend has resulted in our expansion into service areas that complement
 
our existing
operations and provide opportunities for us to develop synergies with, and thus strengthen, the acquired
 
businesses.
As industry consolidation continues, we believe that we are positioned to
 
to capitalize on this trend, as we believe we
have the ability to support increased sales through our existing infrastructure, although
 
there can be no assurances
that we will be able to successfully accomplish this.
 
We
also have invested in expanding
our sales/marketing
infrastructure to include a focus on building relationships with decision
 
makers who do not reside in the office-
based practitioner setting.
As the health care industry continues to change, we continually evaluate possible
 
candidates for joint venture or
acquisition and intend to continue to seek opportunities to expand our
 
role as a provider of products and services to
the health care industry.
 
There can be no assurance that we will be able to successfully pursue
 
any such
opportunity or consummate any such transaction, if pursued.
 
If additional transactions are entered into or
3135
consummated, we would incur merger and/or acquisition-related costs, and there
 
can be no assurance that the
integration efforts associated with any such transaction would be successful.
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,pharmacological
treatments, and expanded third-party insurance coverage, partially offset by the effects of unemployment
on insurance
insurance coverage.
 
In addition, the physician market continues to benefit from the
 
the shift of procedures and
diagnostic testing
from acute care settings to alternate-care sites, particularly physicians’
 
physicians’ offices.
According to the U.S. Census Bureau’s International Database, between 2023 2024
and 2033,2034, the 45 and older
population is expected to grow by approximately 11%.
 
Between 20232024 and 2043,2044, this age group is expected to grow
by approximately 21%20%.
 
This compares with expected total U.S. population growth
 
rates of approximately 6%
between 20232024 and 2033 2034
and approximately 11% between 20232024 and 2043.2044.
According to the U.S. Census Bureau’s International Database, in 2023 2024
there are approximately seven million
Americans aged 85 years or older, the segment of the population most in need of long-term care
 
and elder-care
services.
 
By the year 2050, that number is projected to nearly triple to approximately
 
19 million.
 
The population
aged 65 to 84 years is projected to increase by approximately 23%20% 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,(“CMS”) published “National Health Expenditure Data” indicating that total
 
total national health care spending reached
approximately $4.3$4.5 trillion in 2021,2022, or 18.3%17.3% of the nation’s gross domestic product, the benchmark
 
measure for
annual production of goods and services in the United States.
 
Health care spending is projected to reach
approximately $6.8$7.2 trillion by 2030,2031, or 19.6% of the nation’s projected gross domestic product.
Government
Certain of our businesses involve the distribution, manufacturing, importation,
 
exportation, marketing, and sale of,and
and/or third party payment for,promotion of pharmaceuticals and/or medical devices, and in this regard, we
are subject
to
extensive local, state,
federal and foreign governmental laws and regulations,
including as applicable
to our
wholesale distribution of
pharmaceuticals and medical devices, manufacturing
activities, and as part of
our
specialty home medical supply business
businesses that distributesdistribute and sellssell medical equipment
and supplies directly
to
patients.
 
Federal, state and certain
foreign governments have also increased enforcement
activity in the health care
sector, particularly in areas of fraud
and abuse, anti-bribery and corruption,anti-corruption, controlled substances handling,
 
medical
device regulations and data
privacy and security standards.
Certain of our businesses are subject to various additional federal, state,involve pharmaceuticals and/or medical devices,
 
localincluding in vitro diagnostic devices,
that are paid for by third parties 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 coding,
billing and record-keeping
requirements in order to
substantiate claims for
payment under federal, state and
commercial healthcare
reimbursement programs.
One of
these businesses was suspended in October 2021 by CMS from receiving
payments from Medicare, although it was
permitted to continue to perform and bill for Medicare services.
Such 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 (as amended,2010.
Certain of our businesses are subject to various additional federal, state,
 
local and foreign laws and regulations,
including with respect to the “ACA”).sale, transportation, importation, storage, handling
and disposal of hazardous or
potentially hazardous substances; “forever chemicals” such as per-and
polyfluoroalkyl substances; amalgam bans;
pricing disclosures; supply chain transparency around labor practices; and safe working
conditions.
 
In addition,
activities to
control medical costs, including laws and regulations lowering reimbursement
 
reimbursement rates for pharmaceuticals, medical
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3236
pharmaceuticals, medical devices, medical supplies and/or medical treatments
or services, are ongoing.
 
Many of theseCMS
recently released the 2024 durable medical equipment, prosthetics, orthotics
and supplies (“DMEPOS”)
reimbursement schedule, which, effective January 1, 2024, reduced the DMEPOS reimbursement
rates for non-
rural suppliers, such as us, by removing the Coronavirus Aid, Relief,
and Economic Security (aka CARES) Act
relief rates in effect during the COVID-19 pandemic.
This and other laws and regulations are subject to
change and
their evolving implementation may impact our operations and our
 
financial performance.
Our businesses are generally subject to numerous laws and regulations that could
 
impact our financial performance,
and failure to comply with such laws or regulations could have a material adverse
 
effect on our business.
A more detailed discussion of governmental laws and regulations
 
is included in Management’s Discussion &
Analysis of Financial Condition and Results of Operations, contained
 
in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2022,30, 2023, filed with the SEC on February 21, 2023.28, 2024.
Results of Operations
The following tables summarize the significant components of our operating
 
results and cash flows for the three
months ended March 30, 2024 and April 1, 2023 and March 26, 2022:2023:
Three Months Ended
March 30,
April 1,
March 26,2024
2023
2022
Operating results:
Net sales
$
3,172
$
3,060
$
3,179
Cost of sales
2,160
2,094
2,206
Gross profit
1,012
966
973
Operating expenses:
Selling, general and administrative
791
717
682
Depreciation and amortization
4461
4744
Restructuring costs
10
30
-
Operating income
$
175150
$
244175
Other expense, net
$
(23)
$
(12)
$
(5)
Net income
12898
186128
Net income attributable to Henry Schein, Inc.
93
121
181
Three Months Ended
March 30,
April 1,
March 26,2024
2023
2022
Cash flows:
Net cash provided by operating activities
$
27197
$
9327
Net cash used in investing activities
(39)(72)
(27)(39)
Net cash provided by (used in) financing activities
21(151)
(62)21
3337
Plan of Restructuring
On August 1, 2022, we committed to a restructuring plan focused on
 
funding the priorities of the BOLD+1 strategic
plan, and
streamlining operations and other initiatives to increase efficiency.
 
We expectrevised our previous expectations of
completion and we have extended this initiative to extend through
2023. the end of 2024.
 
We are currently unable in good faith to
make a determination of an estimate of the amount or range of amounts
amounts expected to be incurred in connection with
these activities, both with
respect to each major type of cost associated
associated therewith and with respect to the total cost, or an
estimate of
the amount or range of amounts that will
result in future
cash expenditures.
During the three months ended March 30, 2024 and April 1, 2023, we
recorded restructuring costs of $10 million
and $30 million, respectively.
 
$30 millionThe restructuring costs for these periods primarily related to severance
and
severance and employee-related costs, accelerated amortization of right-of-use
 
lease assets and fixed assets, and
other lease exit costs.
This amount also includes $1 million related to the disposal
of an unprofitable U.S. business,
initiated during 2022 and completed during the three months ended April
1, 2023.costs.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3438
Three Months Ended March 30, 2024 Compared to Three Months Ended April 1, 2023 Compared
Note: Percentages for Net Sales; Gross Profit; Operating Expenses; Other Expense,
Net; and Income Taxes are
based on actual values and may not recalculate due to Three Months Ended March 26, 2022rounding.
Net Sales
Net sales were as follows:
March 30,
% of
April 1,
% of
March 26,Increase
% of
Increase / (Decrease)
20232024
Total
20222023
Total
$
%
Health care distribution
(1)
Dental
$
1,914
60.3
%
$
1,898
62.0
%
$
1,82816
57.5
%
$
70
3.80.8
%
Medical
1,041
32.9
971
31.8
1,17270
36.9
(201)
(17.2)7.3
 
Total health care distribution
2,955
93.2
2,869
93.8
3,00086
94.4
(131)
(4.4)3.0
Technology and value-added services
(2)
217
6.8
191
6.2
17926
5.6
12
6.813.8
Total
$
3,172
100.0
%
$
3,060
100.0
%
$
3,179112
100.0
%
$
(119)
(3.8)3.7
%
The components of our sales growth were as follows:
Total Local
Currency
Growth
Foreign
Exchange
Impact
Total Sales
Growth
Local Currency Growth
Local Internal
Growth
Acquisition
Growth
Health care distribution
(1)
Dental Merchandise
4.0(3.7)
%
2.53.8
%
6.50.1
%
(2.4)0.7
%
4.10.8
%
Dental Equipment
3.90.2
1.5-
5.40.2
(2.6)0.6
2.80.8
Total Dental
4.0(2.9)
2.33.0
6.30.1
(2.5)0.7
3.80.8
Medical
(17.1)(0.7)
8.0
7.3
-
(17.1)
(0.1)
(17.2)7.3
Total Health Care Distribution
(4.3)(2.1)
1.44.6
(2.9)2.5
(1.5)0.5
(4.4)3.0
Technology and value-added services
(2)
6.53.2
1.510.2
8.013.4
(1.2)0.4
6.813.8
Total
(3.7)(1.8)
%
1.45.0
%
(2.3)3.2
%
(1.5)0.5
%
(3.8)3.7
%
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, dental specialty products (including implant, orthodontic and endodontic products), small
equipment, laboratory products, large equipment, equipment repair services, branded and
generic pharmaceuticals, vaccines, surgical products, dental specialty products (including implant, orthodontic and endodontic
products),products, diagnostic tests, infection-control products, PPE products, vitamins, and vitamins.orthopedic implants.
(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, consultingpractice technology, network and hardware services, and other services.
Global Sales
Global net sales for the three months ended April 1, 2023 decreased 3.8% basedMarch 30, 2024 increased 3.7%.
 
upon theThe components of our sales growth
are presented in
the table above.
The 1.8% decrease in our internally generated local currency sales was primarily
 
Salesattributable to the residual impact
of the cyber incident related to decreased sales to episodic customers
(customers that had generally registered a less
continuous level of demand pre-incident) and lower sales of PPE products and
COVID-19 test kits.
For the three
months ended March 30, 2024, the estimated decrease in internally
generated local currency sales, excluding PPE
products and COVID-19 test kits, was 1.2%.
We estimate that sales of PPE products and COVID-19 test kits for the three
months ended April 1, 2023 were
approximately $181 million and $201 million a decrease of approximately 58.8% versus
for the three months ended March 26, 2022.
30, 2024 and April 1, 2023, respectively, representing an estimated decrease of
Excluding PPE products and COVID-19 test kits,$20 million, or 10.0% versus the increase in
internally generated local currency sales wasprior year, with the $20 million net decrease year-over-year representing 0.6% of
6.3%.
Dental
Dentalglobal net sales for the three months ended April 1, 2023 increased 3.8%
based upon the components presented in
the table above.
Our sales growth in local currency for dental merchandise was primarily
attributable to stable
patient traffic along with some price increases.
Our sales growth in local currency for dental equipment was
primarily attributable to growth in North America for traditional equipment,
partially offset by a decrease in digital
equipment.
International dental equipment sales growth in local currency
was supported by a strong equipment
backlog.
Sales of PPE products for the three months ended April 1, 2023
were approximately $92 million, a
decrease of approximately 35.8% versus the three months ended March 26,
2022.
Excluding PPE products, the
increase in internally generated local currency dental sales was 7.4%.30, 2024.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3539
Dental
Dental net sales for the three months ended March 30, 2024 increased 0.8%.
The components of our sales growth
are presented in the table above.
The increase in local currency sales was attributable to the acquisitions of
Biotech Dental and S.I.N. during the year
ended December 30, 2023.
The decrease in internally generated local currency sales for dental
merchandise was
primarily attributable to the residual impact of the cyber incident.
Our sales increase in internally generated local
currency for dental equipment was primarily attributable to some sales shifting
into the first quarter of 2024 due to
the delay of equipment installations during the fourth quarter of 2023
resulting from the impact of the cyber
incident.
We estimate that sales of PPE products were approximately $79 million and $92 million for the three months ended
March 30, 2024 and April 1, 2023, respectively, representing an estimated decrease of $13 million, or 14.5% versus
the prior year, with the $13 million net decrease year-over-year representing 0.7% of dental net sales for
the three
months ended March 30, 2024.
The decrease in sales of PPE products is primarily due to lower
market prices and
reduced demand following the cyber incident.
The estimated decrease in internally generated local currency
sales,
excluding PPE products,
was 2.2%.
Medical
Medical net sales for the three months ended April 1, 2023 decreasedMarch 30, 2024 increased
 
17.2% based upon the7.3%.
The components presentedof our sales growth
are presented in the table above.
 
The increase in local currency sales was attributable to the acquisition
of Shield
Healthcare during the year ended December 30, 2023.
The internally generated local currency decrease in medical
sales is primarily attributable to the residual impact of the cyber incident as well
 
as the conversion of certain
pharmaceutical product sales to lower sales of PPEpriced
products and COVID-19 test kits,generics, partially offset by strong medical equipmentsales of point-of-care diagnostics
including flu and
pharmaceutical sales.
Sales of multi-assay flu/COVID combination tests.
We estimate that sales of PPE products and COVID-19 test kits were approximately $102 million and $109 million for
the three months ended April 1, 2023, a
decrease of approximately 68.4% compared tofor the three months ended March 30, 2024 and April 1, 2023, respectively, representing an estimated decrease of
$7 million, or 6.2% versus the prior year, with the $7 million net decrease year-over-year representing 0.6%
 
26, 2022.of
medical net sales for the three months ended March 30, 2024.
 
ExcludingThe decrease in sales of these products is primarily
due to lower market prices of PPE productsproducts.
and COVID-19 test kits, theThe estimated increase in internally generated local currency medical
 
sales,
excluding PPE products and COVID-19 test kits, was 4.2%0.1%.
Technology and value-added services
Technology and value-added services net sales for the three months ended April 1, 2023March 30, 2024 increased 6.8% based upon13.8%.
The
the components of our sales growth are presented in the table above.
 
During the three months ended April 1, 2023,The internally generated local currency increase
in technology and value-added services sales is primarily attributable
 
the trend for sales of
transactional software improved as we increasedto a continued increase in the number of
cloud-based users of our practice management software and an increase
 
users, generatingin revenue cycle management services.
We
also experienced increased demand for our
revenue cycle management solutions which drive practice efficiency and patient engagement.
 
The increase in sales
during the quarter ended April 1, 2023 was partially offset by the expiration, during
the third quarter of 2022, of a
modestly profitable government contract in one ofand our value-added services
businesses.analytical products.
Gross Profit
Gross profit and gross margin percentages by segment and in total were as follows:
March 30,
Gross
April 1,
Gross
March 26,Increase
Gross
Increase / (Decrease)
20232024
Margin %
20222023
Margin %
$
%
Health care distribution
$
867
29.3
%
$
837
29.2
%
$
85730
28.6
%
$
(20)
(2.3)3.5
%
Technology and value-added services
145
66.8
129
67.4
11616
64.9
13
11.112.7
Total
$
1,012
31.9
$
966
31.6
$
97346
30.6
$
(7)
(0.7)
As a result of different practices of categorizing costs associated with distribution networks
throughout our
industry, our gross margins may not necessarily be comparable to other distribution companies.
Additionally, we
realize substantially higher gross margin percentages in our technology and value-added services
segment than in
our health care distribution segment.
These higher gross margins result from being both the developer and seller of
software products and services, as well as certain financial services.
The software industry typically realizes higher
gross margins to recover investments in research and development.
Within our health care distribution segment, gross profit margins may vary from one period to the next.
Changes in
the mix of products sold as well as changes in our customer mix have been
the most significant drivers affecting
our gross profit margin.
For example, sales of our corporate brand products achieve
gross profit margins that are
higher than average total gross profit margins of all products.
With respect to customer mix, sales to our large-
group customers are typically completed at lower gross margins due to the higher
volumes sold as opposed to the
gross margin on sales to office-based practitioners, who normally purchase lower volumes.
Health care distribution gross profit decreased primarily due to the decrease
in net sales discussed above, partially
offset by $11 million of gross profit from acquisitions and gross margin expansion, mainly as a result of price
increases and a favorable impact of sales mix of higher-margin products.
Technology and value-added services gross profit increased as a result of a higher gross profit from internally
generated sales and gross profit of $3 million from acquisitions, as well as an
increase in gross margin rates
primarily due to the impact of price increases.4.7
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3640
As a result of different practices of categorizing costs associated with distribution networks
throughout our
industry, our gross margins may not necessarily be comparable to other distribution companies.
Additionally, we
realize substantially higher gross margin percentages in our technology and value-added services
segment than in
our health care distribution segment.
These higher gross margins result from being both the developer and seller of
software products and services, as well as certain financial services.
The software industry typically realizes higher
gross margins to recover investments in research and development.
Within our health care distribution segment, gross profit margins may vary between the periods as a result of
the
changes in the mix of products sold as well as changes in our customer
mix.
For example, sales of our corporate
brand and certain specialty products achieve gross profit margins that are higher than
average total gross profit
margins of all products.
With respect to customer mix, sales to our large-group customers are typically completed
at lower gross margins due to the higher volumes sold as opposed to the gross margin on sales to office-based
practitioners, who normally purchase lower volumes.
Health care distribution gross profit for the three months ended March
30, 2024 increased compared to the prior-
year-period due to gross profit from acquisitions and gross margin expansion as a result of a favorable
impact of
sales mix of higher-margin products, partially offset by the decrease in sales resulting from
the residual impact of
the cyber incident and a reduction in sales of PPE products and COVID-19
test kits.
Technology and value-added services gross profit increased as a result of a higher gross profit from internally
generated sales and gross profit from acquisitions.
The slight decrease in gross margin rates was primarily due to
amortization expense.
Operating Expenses
Operating expenses (consisting of selling, general and administrative
 
expenses; depreciation and amortization; and
restructuring costs) by segment and in total were as follows:
% of
% of
March 30,
Respective
April 1,
Respective
March 26,
Respective
Increase
20232024
Net Sales
20222023
Net Sales
$
%
Health care distribution
$
741
25.1
%
$
692
24.1
%
$
64649
21.5
%
$
46
7.27.0
%
Technology and value-added services
121
55.8
99
51.6
8322
46.4
16
18.723.1
Total
 
$
862
27.2
$
791
25.8
$
72971
22.9
$
62
8.59.0
The net increase in operating expenses is attributable to the following:
RestructuringOperating Costs
OperatingRestructuring Costs
Acquisitions
Total
Health care distribution
$
2643
$
18(17)
$
223
$
4649
Technology and value-added services
4(6)
4(3)
831
1622
Total
$
3037
$
22(20)
$
1054
$
6271
The restructuring costs are primarily related to severance and employee-related
costs, accelerated amortization of
right-of-use lease assets and fixed assets, and other lease exit costs.
The increase in operating costs during the three months ended March 30, 2024
includes
increases in payroll and
payroll related costs, travel, and convention expenses
and acquisition costs in both of our
reportable segments.
 
Whilesegments and increased acquisition
expenses in our healthcare distribution segment and an increase in accrued contingent
consideration related to a
2023 acquisition in our technology and value-added services segment.
During the U.S. economy has recently experienced inflationarythree months ended March 30,
2024, we also incurred $5 million of expenses directly related to the cyber
 
pressures and strengtheningincident, mostly consisting of
the U.S. dollar, their impacts have not been material to our resultsprofessional fees.
Other Expense, Net
Other expense, net was as follows:
March 30,
April 1,
March 26,
Variance
20232024
20222023
$
%
Interest income
$
5
$
3
$
2
$
1
58.3127.1
%
Interest expense
(30)
(14)
(7)(16)
(7)
(97.8)(114.8)
Other, net
2
(1)
-3
(1)
n/a(363.5)
Other expense, net
$
(23)
$
(12)
$
(5)(11)
$
(7)
(119.0)(81.5)
Interest income increased primarily due to increased interest rates.
 
Interest expense increased primarily due to
increased borrowings and increased interest rates.
Income Taxes
ForOur effective tax rate was 25.6% for the three months ended April 1, 2023 our effective tax rate was 23.8%March 30, 2024 compared
 
to 24.0%23.8% for the prior year
period.
 
The difference between our effective tax rate and the federal statutory tax raterates primarily
relates to state
and foreign
foreign income taxes and interest expense as well as stock-based compensation.expense.
The Organization of Economic Co-Operation and Development (OECD) issued
technical and administrative
guidance on Pillar Two Model Rules in December 2021, which provides for a global minimum tax rate on the
earnings of large multinational businesses on a country-by-country basis.
Effective January 1, 2024, the minimum
global tax rate is 15% for various jurisdictions pursuant to the Pillar Two framework.
Future tax reform resulting
from these developments may result in changes to long-standing tax principles,
which may adversely impact our
effective tax rate going forward or result in higher cash tax liabilities.
As of March 30, 2024, the impact of the
Pillar Two Rules to our financial statements was immaterial.
As we operate in jurisdictions which have adopted
Pillar Two, we are continuing to analyze the implications to effectively manage the impact for 2024 and beyond.
3742
Liquidity and Capital Resources
Our principal capital requirements have included funding of acquisitions, purchases
 
of additional noncontrolling
interests, repayments of debt principal, the funding of working capital needs,
 
purchases of fixed assets and
repurchases of common stock.
 
Working capital requirements generally result from increased sales, special
inventory forward buy-in opportunities and payment terms for receivables
 
and payables.
 
Historically, sales have
tended to be stronger during the second half of the year and special inventory
 
forward buy-in opportunities have
been most prevalent just before the end of the year, and have caused our working capital requirements
 
to be higher
from the end of the third quarter to the end of the first quarter of
 
the following year.
We finance our business primarily through cash generated from our operations, revolving credit facilities and debt
placements.
 
Please see
 
for further information.
 
Our ability to generate sufficient cash flows from
operations is dependent on the continued demand of our customers
 
for our products and services, and access to
products and services from our suppliers.
Our business requires a substantial investment in working capital, which
 
is susceptible to fluctuations during the
year as a result of inventory purchase patterns and seasonal demands.
 
Inventory purchase activity is a function of
sales activity, special inventory forward buy-in opportunities and our desired level of inventory.
 
We anticipate
future increases in our working capital requirements.
We finance our business to provide adequate funding for at least 12 months.
 
Funding requirements are based on
forecasted profitability and working capital needs, which, on occasion, may
 
change.
 
Consequently, we may change
our funding structure to reflect any new requirements.
We believe that our cash and cash equivalents, our ability to access private debt markets and public equity markets,
and our available funds under existing credit facilities provide us with
 
sufficient liquidity to meet our currently
foreseeable short-term and long-term capital needs.
Our acquisition strategy is focused on investments in companies that
add new customers and sales teams, increase
our geographic footprint (whether entering a new country, such as emerging markets, or building scale where we
have already invested in businesses), and finally, those that enable us to access new products and technologies.
Net cash provided by operating activities was $27$197 million for the
 
three months ended April 1, 2023,March 30, 2024, compared to
to net cash provided by operating activities of $93$27 million for the prior
year.
The net change of $170 million was
primarily attributable to changes in working capital accounts, primarily
accounts receivable and accounts payable
and accrued expenses; and lower cash net income.
During the quarter ended March 30, 2024, the cyber incident
had several residual impacts to the operating cash flows from our working
capital, net of acquisitions, including an
increase in operating cash flows from accounts receivable due to improved
collection levels and decreased cash
flows from accounts payable and accrued expenses resulting from previously delayed
payments.
Net cash used in investing activities was $72 million for the three
months ended March 30, 2024, compared to net
cash used in investing activities of $39 million for the prior year.
 
The net change of $66$33 million was primarily
primarily dueattributable to a decrease in operating incomeincreased payments for equity investments and an unfavorable change inbusiness acquisitions,
 
working capital, netand increased purchases of acquisitions.
fixed assets resulting from our continued investment in our facilities and operations.
Net cash used in investingfinancing activities was $39$151 million for the
three months
ended April 1, 2023,March 30, 2024, compared to $27net
cash provided by financing activities of $21 million for the prior year.
 
The net change of $12$172 million was
primarily attributable to increased payments
for
purchases of fixed assets.
Net cash provided by financing activities was $21 million for the
three months ended April 1, 2023, compared to
net cash used in financing activities of $62 million for the prior year.
The net change of $83 million was primarily
due to increased net borrowings from debt to finance our investments
and increased acquisitions of
noncontrolling interests in subsidiaries, partially offset by increaseddecreased repurchases of
 
of common stock.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3843
The following table summarizes selected measures of liquidity and capital
 
resources:
April 1,March 30,
December 31,30,
2024
2023
2022
Cash and cash equivalents
 
$
126159
$
117171
Working
 
capital
 
(1)
1,7801,744
1,7641,805
Debt:
Bank credit lines
 
$
236264
$
103264
Current maturities of long-term debt
 
55103
6150
Long-term debt
 
1,0212,010
1,0401,937
Total debt
 
$
1,3122,377
$
1,1492,351
Leases:
Current operating lease liabilities
$
7375
$
7380
Non-current operating lease liabilities
274266
275310
(1)
Includes $555$497 million and $327$284 million of certain accounts receivable which serve as security for U.S. trade accounts receivable
securitization at April 1, 2023March 30, 2024 and December 31, 2022,30, 2023, 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
 
increased to 50.4 days as of March 30, 2024 from
43.4 days as of April 1, 2023, fromwhich was primarily attributable to
41.6 days asthe impact of March 26, 2022.the cyber incident.
 
During the three
months ended April 1, 2023,March 30, 2024, we wrote
off approximately $3
$2 million of fully reserved accounts
receivable against
our trade receivable
reserve.
 
Our inventory turns from
operations decreasedincreased to 4.9 as of March 30, 2024
from 4.3 as
of April 1, 2023 from 4.7 as of March 26, 2022.2023.
 
Our working capital accounts may
be impacted by current and
future economic conditions.
Leases
We
have operating and finance leases for corporate offices, office space, distribution and other facilities,
vehicles
and certain equipment.
 
Our leases have remaining terms of less than one year tomonth
 
to approximately 1817 years, some of
which may include options to extend the leases for up to 15 years.
 
As of April 1, 2023,March 30, 2024, our right-of-use assets
related to operating leases were $280$314 million and our current and non-current
 
operating lease liabilities were $73$75
million and $274$266 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 April 1, 2023,March 30, 2024, we repurchased $4.6$4.8 billion,
 
or 88,404,58891,393,533 shares, under our common
common stock repurchase programs, with $415$190 million available
as of April 1, 2023
March 30, 2024 for future common stock share
share repurchases.
Redeemable Noncontrolling Interests
Some minority stockholders in certain of our consolidated subsidiaries have
the right, at certain times, to require us
to acquire their ownership interest in those entities.
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.
As of March 30, 2024 and April 1, 2023, our balance for
redeemable noncontrolling
interests was $798 million and $864 million, respectively.
Please see
for further information.
3944
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 31, 2022,
except accounting policies adopted
as of January 1, 2023, which are discussed in
of the Notes to the Condensed Consolidated Financial
Statements included under Item 1.30, 2023.
Accounting Standards Update
For a discussion of accounting standards updates that have been adopted
 
or will be adopted, see
 
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 31, 2022.30, 2023.
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 April 1,March
 
2023,30, 2024, to ensure that all material
material information required to be disclosed by us in reports that we file
or submit
under the Exchange Act is accumulated
accumulated and communicated to them as appropriate to allow timely decisions
 
decisions regarding required disclosure and
that all such
information is recorded, processed, summarized and reported
within the
time periods specified in the
SEC’s rules
and forms.forms, and the rules of the Nasdaq stock exchange.
Changes in Internal Control over Financial Reporting
The combination of continued acquisition integrations and systems implementation
 
implementation activity undertaken during the
quarter ended April 1, 2023 and carried over from prior quarters when considered
in the aggregate, does not
representrepresents a material change in our
internal control over financial reporting.
During the quarter ended March 30, 2024, post-acquisition integration related
activities continued for our medical
and dental 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.
In addition, we completed systems implementation activities related
to a new ERP system for two of our dental
businesses in Brazil.
Finally, we continued systems implementation activities in the US for two of our dental
businesses.
All continued acquisition integrations and systems implementation activity
involve necessary and appropriate
change-management controls that are considered in our quarterly assessment of
the design and operating
effectiveness of our internal control over financial reporting.
The deficiencies in internal control over financial reporting identified
as of December 30, 2023 at the application
control level related to logical and user access management and segregation
of duties have been the subject of
ongoing review and the development and implementation of specific
remediation action plans, including the testing
and validation of control operating effectiveness, which is expected to be completed
prior to year-end.
45
Limitations of the Effectiveness of Internal Control
A control system, no matter how well conceived and operated, can provide only
 
only reasonable, not absolute, assurance
that the objectives of the internal control system are met.
 
Because of the inherent limitations of any internal control
system, no evaluation of controls can provide absolute assurance that
 
all control issues, if any, within a company
have been detected.
40
PART
 
II.
 
OTHER INFORMATION
 
ITEM 1.
 
LEGAL PROCEEDINGS
 
For a discussion of Legal Proceedings, see
 
of the Notes to the Condensed Consolidated
Financial Statements included under Item 1.
ITEM 1A. RISK FACTORS
 
There have been no material changes from the risk factors disclosed in
 
Part 1, Item 1A, of our Annual Report on
Form 10-K for the year ended December 31, 2022.30, 2023.
ITEM 2.
 
UNREGISTERED SALES OF EQUITY SECURITIES
 
AND USE OF PROCEEDS
Purchases of equity securities by the issuer
Our share repurchase program, announced on March 3, 2003, originally
 
allowed us to repurchase up to two million
shares pre-stock splits (eight million shares post-stock splits) of our common
 
stock, which represented
approximately 2.3% of the shares outstanding at the commencement of
 
of the program.
 
Subsequent additional
increases totaling $4.9
 
billion, authorized by our Board of Directors, to the repurchase program
 
provide for a total
of $5.0 billion (including $400 million authorized on February 8, 2023) of shares
 
of our common stock to be
repurchased under this program.
As of April 1, 2023,March 30, 2024, we had repurchased approximately $4.6$4.8 billion of
 
common stock (88,404,588(91,393,533 shares) under
these initiatives, with $415$190 million available for future common stock
 
share repurchases.
The following table summarizes repurchases of our common stock
 
under our stock repurchase program during the
fiscal quarter ended April 1, 2023.March 30, 2024:
Total Number
Maximum Number
Total
of Shares
of Shares
Number
Average
Purchased as Part
that May Yet
of Shares
Price Paid
of Our Publicly
Be Purchased Under
Fiscal Month
Purchased (1)
Per Share
Announced Program
Our Program (2)
1/1/12/31/2023 through 2/4/20233/2024
460,536478,429
$
81.7474.28
460,536478,429
5,502,0013,012,674
2/5/20234/2024 through 3/4/20232/2024
457,763464,966
84.1175.75
457,763464,966
5,562,0902,525,517
3/5/20233/2024 through 4/1/20233/30/2024
305,62055,333
78.0376.57
305,62055,333
5,089,5282,514,895
1,223,919998,728
1,223,919998,728
(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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4146
ITEM 5.
OTHER INFORMATION
Rule 10b5-1 Trading Arrangements
During the three months ended March 30, 2024, (i)
Michael S. Ettinger
, the Company’s
Executive Vice President
and Chief Operating Officer
, and (ii)
Walter Siegel
, the Company’s
Senior Vice President and Chief Legal Officer
,
each
adopted
a Rule10b5-1 trading arrangement which is a trading plan for
the future sale of securities that is
intended to satisfy the affirmative defense of Exchange Act
Rule
10b5
-1(c), as well as the requirements of the
Company’s insider trading policy. Each plan is subject to an initial “cooling off” period during which there may be
no transactions between the adoption date and a date that is the later of 90 days
or two business days following the
Company’s filing of its next quarterly report on Form 10-Q or Annual Report on form 10-K.
On
March 4, 2024
,
Mr. Ettinger adopted the trading plan to sell a total of
12,240
shares based on limit orders at a specified price, with
a term through
March 4, 2025
.
On
March 7, 2024
, Mr. Siegel adopted the trading plan to sell
4,134
shares based on
a limit order at a specified price, with a term through
March 7, 2025
.
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 April 1, 2023,March 30, 2024, formatted in Inline XBRL (included within
Exhibit
Exhibit 101 attachments).+
** Indicates management contract or compensatory plan or agreement.
+ Filed or furnished herewith.
 
4247
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
 
Registrant has duly caused this Report to
be signed on its behalf by the undersigned thereunto duly authorized.
Henry Schein, Inc.
(Registrant)
By: /s/ Ronald N. South
Ronald N. South
Senior Vice President and
Chief Financial Officer
(Authorized Signatory and Principal Financial
and Accounting Officer)
Dated: May 9, 20237, 2024