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
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
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
☒
☐
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
☒
☐
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
☐
☐
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
6583
1,4421,644
1,863
Inventories, net of reserves of $
1,918188
192
1,686
1,815
Prepaid expenses and other
438589
466639
3,9524,078
3,9884,488
Property and equipment, net
396500
383498
Operating lease right-of-use assets
280314
284325
2,9173,835
2,8933,875
548915
587916
Investments and other
479503
472471
$
8,57210,145
$
8,60710,573
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND
STOCKHOLDERS' EQUITY
Current liabilities:
$
855879
$
1,0041,020
236264
103264
Current maturities of long-term debt
55103
6150
Operating lease liabilities
7375
7380
Accrued expenses:
231245
314332
156143
132137
566625
592700
Total current liabilities
2,1722,334
2,2242,683
1,0212,010
1,0401,937
4077
3654
Operating lease liabilities
274266
275310
368423
361436
3,8755,110
3,9365,420
Redeemable noncontrolling interests
570798
576864
Commitments and contingencies
(nil)
(nil)
Stockholders' equity:
Preferred stock, $
0.01
1,000,000
none
-
-
Common stock, $
0.01
480,000,000
131,196,783128,480,909
outstanding on
April 01, 2023March 30, 2024 and
131,792,817129,247,765
outstanding on December
31, 202230, 20231
1
Additional paid-in capital
-
-
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
284
million, respectively, and long-term debt of $ 300
$
210
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
2,1602,094
2,206
Gross profit
1,012966
973
Selling, general and administrative
791717
682
Depreciation and amortization
4461
4744
Restructuring costs
1030
-
Operating income
150175
244
Interest income
53
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 tax43
4
Net income
98128
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
$
0.91
$
1.30
Weighted-average common
shares outstanding:
Basic
128,720,661131,365,789
137,296,581Diluted
133,039,886
139,237,472
See accompanying notes.
5
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME
(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
55150
190
Less: Comprehensive income attributable to noncontrolling interests:(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)
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 ofcapital -
-
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)
Equity
Balance, December 31, 2022
131,792,817
$
1
$
-
$
3,678
$
(233)
$
649
$
4,095
Net income (excluding $
4
attributable to
redeemableRedeemablenoncontrolling 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)
Equity
Balance, December 25, 2021
137,145,558
$
1
$
-
$
3,595
$
(171)
$
638
$
4,063
Net income (excluding $
4
attributable to redeemablenoncontrolling 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 ofcapital-
-
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
7352
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
21
4Other
(1)
(7)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
190(20)
16Inventories
63
(9)
Other current assets
4129
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
OtherCapitalized 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
9031
-
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
171117
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)
)
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 reclassifiedto conform to the currentperiod presentation.These reclassifications, individually and in the aggregate, didnothave 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
forfor 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 havethe obligation to absorb themajority of the losses or benefits.For this VIE, the trade accounts receivable transferred to the VIEare pledged ascollateral to the related debt.The creditors have recourse to us for losses on these trade accounts receivable.AtApril 1, 2023 and December 31, 2022, certain trade accounts receivable thatcan only be used to settle obligationsof this VIE were $
555
327
million, respectively, and the liabilities of this VIE where the creditorshave recourse to us were $
420
255
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-19pandemic may again have amaterial 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 transferredto the VIE are pledged as collateral to the relateddebt.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 usedto settle obligations of
this VIE were $
497
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
210
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
9
Note 2 –
CriticalSignificant Accounting Policies
Accounting Pronouncements Adoptedand Recently Issued Accounting
StandardsStandards
CriticalSignificant Accounting Policies
There have been no material changes in our
criticalsignificant accounting policies
during
during the three months ended
April 1,March2023,30, 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 extentthe 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 bedisaggregated for federal, state and foreign taxes and further disaggregated for specific jurisdictions to the extent therelated amounts exceed a quantitative threshold. The ASU also describes items that need to be disaggregated based ontheir 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 reconcilingitem is associated.The ASU eliminates the historic requirement that entities disclose information concerningunrecognized tax benefits having a reasonable possibility of significantly increasing or decreasing in the 12months 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 availablefor 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 informationon an annual and interim basis for all public entities to enable investors todevelop more decision-useful financial analyses.Currently, Topic280 requires that a public entity disclose certain
qualitative and quantitative information about
such programs.its
reportablesegments.For example, a public entity is required to report a measure ofsegment profit or loss that the chief operating decision maker uses to assess segment performance andmake 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 publicentity identifies its operating segments, aggregates those operating segments or applies the quantitative thresholdsto determine its reportable segments. This ASU is effective for fiscal years beginning after December 15,
2022,2023, and interimincluding interim periods within
those fiscal years
except for amendedroll forward information, which is effectivefor fiscal years beginning after December 15,
2023.2024.Early adoption is permitted.
We do not expect that the requirements of
this guidanceASU2023 – 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 arrangementunder Topic 718 or within the scope of other guidance.The ASU provides an illustrative example with multiple fact patternsand 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 compensationto employees or nonemployees in exchange for goods or services.Entities can apply the
periodamendments either retrospectively toall periods presented in the financial statements or prospectively to profits interest awards grantedor modified on or after the date of
adoption. If prospective application
is elected, an entity must disclose the natureof
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 CONSOLIDATEDFINANCIAL STATEMENTS (in millions, except share and per share data)
)
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 guidanceASU 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 cyberincident, 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
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
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
geographicarea:April 1, 2023
North America
International
Global
Net sales:
Health care distribution
$
1,144
$
754
$
1,898
951
20
971
Total health care distribution
2,095
774
2,869
Technologyoperating segment
and
value-added services166
25
191
$
2,261
$
799
$
3,060
March 26, 2022
North America
International
Global
Net sales:
Health care distribution
$
1,105
$
723
$
1,828
1,150
22
1,172
Total health care distribution
2,255
745
3,000
Technologyand value-added services156
23
179
$
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 werepreviously deferred at December 31, 2022.At December 31, 2022, the current portion of contract liabilitiesof $86
million was reported in accrued expenses: other, and $
8
million related to non-current contract liabilities wasreported in other liabilities.At April 1, 2023, the current and non-current portion of contract liabilities were$85
million and $
9
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
Technologyand 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
Technologyand 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 currentand non-current contract liabilities were $
84
8
89
9
86
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 recognizedin 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 liabilitiesare 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)
)
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
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 endodonticproducts),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,
practicecontinuingeducation 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
$Medical
1,828
971
1,172
Total health care distribution
2,8692,955
3,0002,869
Technology
and value-added services
(2)
217
191
179Total
Total$
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
2430
33
Total
$
175150
$
244175
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS (in millions, except share and per share data)
)
13
Note 6
Business Acquisitions
Our acquisition strategy is focused on investments in companies thatadd 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 withinthe 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
assets.The intangible assets acquired consisted of customer relationshipsand lists of $ 6
development of $
4
million, trademarks and tradenames of $ 1
million and non-compete agreements of $ 1
Weighted average useful lives for these acquired intangible assets were
10
10
5
5
respectively.
Goodwill is a result of the expected synergies and cross-selling opportunities thatthese 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, wasnot 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 supplierof homecare medical products delivered directly to patients in their homes, forpreliminary 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 businessby 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 completedin 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 primarilyto operating leases. The pro forma financial information has not been presented because theimpact 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 considerationof $
329
million.Based in São Paulo, S.I.N. manufactures an extensive line of productsto perform dental implant procedures and is focused on advancing the development of value-priced dentalimplants.S.I.N. recently expanded the distribution of its products into the United States and other internationalmarkets. HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS (in millions, except share and per share data)
)
14
The accounting for the acquisition of S.I.N. has not been completedin 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 primarilyto deferred tax adjustments. The pro forma financial information has not been presented because theimpact 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”), whichis a provider of dental implants, clear aligners, individualized prostheticsand innovative digital dental software based in France.Biotech Dental has several important solutions for dental practicesand dental labs, including Nemotec, a comprehensive, integrated suite of planning and diagnostic softwareusing open architecture that connects disparate medical devices to create a digital view of the patient, offering greater diagnosticaccuracy 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 theirclinical 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 periodadjustments recorded through March 30, 2024:
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS(in millions, except share and per share data)
)Allocation as
12
Note 5
Business Acquisitions
In connection with our business acquisitions, the major classes ofassets and liabilities to which we generallyallocate acquisition consideration to, excluding goodwill, includeidentifiable intangible assets (i.e., customerrelationships and lists, trademarks and trade names, product developmentand non-compete agreements), inventoryand accounts receivable.The estimated fair value of
identifiable intangible assetsis based on critical judgmentsand assumptions derived from analysis of market conditions, includingdiscount rates, projected revenue growthrates (which are based on historical trends and assessment of financial projections),estimated customer attrition andprojected cash flows.These assumptions are forward-looking and could be affected by future economicand marketconditions.
While we use our best estimates and assumptions to accurately value assetsacquired and liabilities assumed at theacquisition date as well as contingent consideration, where applicable,our estimates are inherently uncertain andsubject 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 assumedwith the corresponding offset to goodwillwithin our condensed consolidated balance sheets.At the end of the measurement period or final determination ofthe values of such assets acquired or liabilities assumed, whichevercomes first, any subsequent adjustments arerecognized in our condensed consolidated statements of operations.
The accounting for certain of our acquisitions during the year ended December31, 2022 had not been completed inseveral areas, including but not limited to pending assessments of intangibleassets, and contingent considerationassets and liabilities.For the three months ended AprilJuly 1, 2023
andMeasurement
Period
Adjustments
Allocation as
of March
26, 2022,there were no material30, adjustments recorded in our condensed consolidated statements of incomerelating to changes in estimated values ofassets acquired, liabilities assumed and contingent considerationassets and liabilities.2023 Acquisitions
During the three months ended April 1, 2023, we acquired the majorityof a company within the health caredistribution segment.The impact of this acquisition was not considered material toour condensed consolidatedfinancial statements.
The following table aggregatesthe estimated fair value, as of the date of acquisition, of considerationpaid and netassets acquired for the acquisition during the three months ended April1, 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 customerrelationships and lists of $
1
million and trademarks and tradenames of $1
million.The estimated useful lives ofthese intangible assets are
2 years
5 years
, respectively.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
1315
Goodwill is a result of expected synergies that are expected to originate from theacquisition 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 acquisitionand 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 acquiredas part of the acquisition of Biotech Dental:
2023
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 theimpact 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 anadjustment of $ 15
within the selling, general and administrative line in our condensed consolidatedstatements of income, representing a change in the fair value of contingent consideration related to a 2023acquisition. During the three months ended March 30, 2024 we completed accountingfor certain acquisitions that occurred in the year ended December 30, 2023.In relation to these acquisitions, we did not record materialadjustments in our condensed consolidated financial statements relating to changes in estimatedvalues of assets acquired, liabilities assumed and contingent consideration assets and liabilities.
The pro forma financial information for our 2023 acquisitions has not beenpresented because the impact of the acquisitions was immaterial to our condensed consolidatedfinancial statements. Acquisition Costs
During the three months ended
March 30, 2024 and April 1, 2023
and March 26, 2022 we
incurred
$2
7
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)
)
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 receivablefair 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
1,1492,351
million, respectively.
Factors that we considered when estimating the fair
valueofvalue 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 usederivative instruments to minimize our exposure to fluctuations in foreigncurrency exchange rates.Our derivative
instruments primarily include foreign currency forward agreements,
relatedforecasted
to certain intercompany loans, certainforecasted inventory purchase commitments, with foreign suppliers,
foreign currency forward contracts,
to hedge aportion of our euro-denominated foreign operations which are designatedas net investment hedgesinterest rate swaps and
a total
return
swap for the purpose of economically hedging our unfunded non-qualifiedsupplemental executive retirementplan 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 thevaluation date. HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS (in millions, except share and per share data)
)
17
The fair value of total return swaps is determined by valuing the underlyingexchange traded funds of the swap using market-on-close pricing by industry providers as of the valuationdate that are classified within Level 2 of the fair value hierarchy.
Redeemable noncontrolling interests
The values for redeemable noncontrolling interests are based on recenttransactions and/or implied multiples of earnings that are classified within Level 3 of the fair value hierarchy.
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 andrecognized at fair value on a recurring basis classified under the appropriate level of the fair value hierarchy as ofMarch 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
-
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
-
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 CONSOLIDATEDFINANCIAL STATEMENTS (in millions, except share and per share data)
)
18
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 toJuly 11, 2028
update the interest rate provisions to reflect the current market approachfor 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 reportingquarter.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
Agreement requires, among other things, that we maintain certain maximumleverage ratios.Additionally, the Revolving Credit Agreement contains customary representations, warrantiesand affirmative covenants as well as customary negative covenants, subject to negotiated exceptions, onliens, indebtedness, significant corporate changes (including mergers), dispositions and certain restrictive agreements.As of March 30, 2024 and December 30, 2023, we had $
50
200
million in borrowings, respectively under this revolving credit facility. During the three months ended March 30, 2024, the average outstanding balanceunder 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 CreditLines As of March 30, 2024 and December 30, 2023, we had various other short-termbank credit lines available, in various currencies, with a maximum borrowing capacity of $
383
368
million, respectively.As of March 30, 2024 and December 30, 2023, $
214
64
million, respectively, were outstanding.During the three months ended March 30, 2024, the average outstanding balances underour various other short-term bank credit lines was approximately $
96
million.At March 30, 2024 and December 30, 2023, borrowings underother 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)
)
1519
TotalReturn SwapsLong-term debtThe fair value for the total return swap is measured by valuingthe underlying exchange traded fundsLong-term debt consisted of the
swapfollowing:using market-on-close pricing by industry providers as of the valuationdate and are classified within Level 2 of thefair value hierarchy.
Redeemable noncontrolling interests
The values for redeemable noncontrolling interests are classified within Level3 of the fair value hierarchy and arebased on recent transactions and/or implied multiples of earnings.
for additional information.Assets measured on a non-recurring basis at fair value include Goodwilland Other intangibles, net, and areclassified as Level 3 within the fair value hierarchy.
The following table presents our assets and liabilities that are measured andrecognized at fair value on a recurringbasis classified under the appropriate level of the fair value hierarchy as ofApril 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
-
1
-
1
$
-
$
23
$
-
$
23
Liabilities:
Derivative contracts designated as hedges
$
-
$
1
$
-
$
1
Derivative contracts undesignated
-
2
-
2
$
-
$
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
$
-
$
27
$
-
$
27
Liabilities:
Derivative contracts designated as hedges
$
-
$
1
$
-
$
1
Derivative contracts undesignated
-
3
-
3
-
3
-
3
$
-
$
7
$
-
$
7
Redeemable noncontrolling interests$
-
$
-
$
576
$
576
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS(in millions, except share and per share data)
)
16
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
$
236
$
103
Revolving Credit Agreement
On
August 20, 2021
, we entered into a $
1.0
billion revolving credit agreement (the “Credit Agreement”).Thisfacility, which matures on
August 20, 2026
750
million revolving credit facility which was scheduledto mature in April 2022.The interest rate is based on the USD LIBOR plus a spread based on ourleverage ratio atthe end of each financial reporting quarter.Most LIBOR rates have been discontinued after December 31,2021,while the remaining LIBOR rates will be discontinued immediatelyafter June 30, 2023.We do not expect thediscontinuation of LIBOR as a reference rate in our debt agreementsto have a material adverse effect on ourfinancial 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 customaryrepresentations, warranties and affirmative covenants as well as customary negativecovenants, subject tonegotiated exceptions, on liens, indebtedness, significant corporate changes(including mergers), dispositions andcertain restrictive agreements.As of April 1, 2023 and December 31, 2022, we hadno
revolving credit facility, and there were $
9
9
million of letters of credit, respectively, provided to thirdparties under the credit facility.
Other Short-Term Bank CreditLinesAs of April 1, 2023 and December 31, 2022, we had various other short-termbank credit lines available, with amaximum borrowing capacity of $
404
402
million, respectively.As of April 1, 2023 and December31, 2022, $
236
103
million, respectively, were outstanding.At April 1, 2023 and December 31, 2022,borrowings under all of these credit lines had a weighted average interestrate of7.55
% 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
1,0762,113
1,0462,087
(55)(103)
(6)(150)
$
1,0212,010
$
1,040
1,937
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS(in millions, except share and per share data)
)
17
Private Placement Facilities
Our private placement facilities include
four
insurance companies, have a total facility amount of $
1.5
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
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
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 CONSOLIDATEDFINANCIAL STATEMENTS (in millions, except share and per share data)
)
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 balancedue 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
1.47
6.79
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
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 TermCredit Agreement contains customary representations, warranties and affirmative covenants as well as customary negative covenants, subjectto negotiated exceptions, on liens, indebtedness, significant corporate changes (including mergers), dispositionsand 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
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
330210
million, respectively.
At
April 1, 2023,March 30, 2024, the interest rate on borrowings under
this
this facility
waswas based on the asset-backed commercial paper rate of
4.995.47
% plus
0.75
%, for a combined rate of
5.746.22
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
35
basis points depending upon program utilization.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
1821
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) issuedtechnical 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 impactfor 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
94115
respectively, of which $
80106
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 bythe IRS that tax year 2019 wasselected for examination.
The
total amounts of interest and penalties are classified as a componentof the provision for income taxes.Theamount of tax interest expense
included as a component of the provisionfor taxes was $
1
1
million for the three months ended March 30, 2024 and April 1, 2023, and $
1
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)
)
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 ofcompletion 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
amountsamounts expected to be incurred in connection with
these activities, both with
respect to each major type of cost
associatedassociated 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
and $
30
million,
respectively.The restructuring costs for these periods primarily related to
severanceandseverance 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 April1, 2023.Restructuring costs recorded for the three months ended
March 30, 2024and April 1, 2023, consisted
of the
following (there werenofollowing:
restructuring costs for the three months ended March 26, 2022):
Three Months Ended March 30, 2024
Health Care
Distribution
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
$
9
$
1
$
10
Three Months Ended April 1, 2023
Health-CareHealth Care
Distribution
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 relatesto severance and employee-related costs, isof April 1, 2023 is included in accrued expenses: other within our condensed
consolidated
balance sheets.Liabilities related to exitedleased facilities are recorded within our current and non-current operatinglease liabilities within our condensed consolidated balance sheet.sheets.
Health Care
Value-Added
Distribution
Services
Total
Balance, December
31, 202230, 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, 2023March 30, 2024$
2619
$
41
$
3020
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
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
oror 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
thirty-eight
plaintiffsis currently set for a jury trial on July
24, 2023; 8, 2024; the action filed by MobileCounty Board of Health, et al. in Alabamastate 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
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 Companyin 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, alsoin the EDNY,Case No. 24-cv-550 (the “Depperschmidt Action”).On February 12, 2024, the Depperschmidt Action was voluntarily dismissedwithout prejudice.On February 16, 2024, an amended complaint was filed inthe 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 individualswhose personally identifying information and personal health information was compromised bythe incident.Plaintiffs generally claim to have been harmed by alleged actions and/or omissions by the Companyin 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”), havebeen named as defendants in a qui tam lawsuit brought under the federal False Claims Act (“FCA”), inan 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 DistrictCourt for the Eastern District of Pennsylvania.The case was filed under seal in 2021 by two relators (CoreyRuss 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 (thecombat application tourniquet, or HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS (in millions, except share and per share data)
)
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, NARand CAT- R, Relators requested and obtained leave to file their Second AmendedComplaint on April 24, 2024.Relators’ FCA claims are based on allegations that NAR and Henry Schein made falserepresentations and certifications in connection with, and sold and submitted false claims for payment to the federalgovernment 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 notedon 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)
)
2125
Note 1112 – Stock-Based Compensation
Stock-based awards are provided to certain employees under
the terms ofour 2020 Stock Incentive
Plan and to
non-employeenon-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 andbased 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 grantedwithinclude12
-month
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 ofgrant.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
circumstancescircumstances affecting us.
Over the performance period, the number of
shares of common stockRSUs that will
ultimately vest
ultimately vest and be issued and the
relatedrelated compensation expense is adjusted upward or downward based upon our
estimation of achieving such
performanceperformance 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
grant date and have a contractual term of
ten years
from the grant date, subject to earlier termination of
the term
andterm acceleration upon certain events.
Compensation expense for
these stock options is recognized
using
using a graded
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)
)
2226
Our
accompanying condensed consolidated statements of income reflect
pre-tax share-based compensation
expense
of $of8
and $
10
7
12
9
million after-tax) for the three months ended
March 30, 2024 and April 1,
2023and March 26, 2022, respectively.2023.
Total unrecognized compensation cost related to unvested awards as of April 1, 2023March 30, 2024 was $
119120
expected to be recognized over a weighted averageweighted-average period of approximately
2.7
Our
accompanying condensed consolidated statements of cash flows present
our
our stock-based compensation expense
as aas anreconciling adjustment
to reconcilebetween net income
toand net cash provided by operating
activities
activities for all periods presented.
Inthe accompanying consolidated statements ofThere were no cash
flows, there wereno benefits associated with tax deductions in
excess of
recognized compensation
as a cash inflow from financingactivities 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 orthevalue ultimately realized by recipients of stock options, and subsequentevents are not indicative of thereasonableness 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
Shares
Price
Life (in years)
Outstanding at beginning of period1,117,574
$
71.38
-
-
(10,897)
62.71
(5,911)
77.31
Outstanding at end of period1,100,766
$
71.44
8.3
$
13
Options exercisable at end of period572,132
$
68.11
March 30, 2024:Weighted Average
Weighted Average
Aggregate
Number of
Exercise
Remaining Contractual
Intrinsic
Options
Price
Life (in years)
Value
Vestedor expected to vest520,781
$
75.22
8.5
$
4
The following tables summarize the activity of our unvested RSUs forthe three months ended April 1, 2023:Time-Based Restricted Stock Units
Performance-Based Restricted Stock Units
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 period1,756,044
$
66.59
520,916
$
60.23
395,750
77.75
465,260
79.66
(387,302)
61.13
(627,596)
60.66
(34,843)
68.16
(39,463)
74.48
Outstanding at end of period1,729,649
$
70.38
$
81.54
319,117
$
68.96
$
81.54
Stock Options
Weighted Average
Weighted Average
Aggregate
Exercise
Remaining Contractual
Shares
Price
Life (in years)
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 forthe 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)
)
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)
$
570798
$
576864
Note 1314 – Comprehensive Income
Comprehensive income includes certain gains and losses that, under U.S.
GAAP,
are excluded from net income
asandsuch 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)
(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 CONSOLIDATEDFINANCIAL STATEMENTS (in millions, except share and per share data)
)
28
The following table summarizes the components of comprehensive income, netof 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 ourcomprehensive income.The foreign currency translation gain (loss) during the three months ended March 30, 2024and 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, andApril 1, 2023 was attributable to a net investment hedge.
The following table summarizes our total comprehensive income, net ofapplicable 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)
)
24
The following table summarizes the components of comprehensive income, netof applicable taxes as follows: 29Three Months Ended
April 1,
March 26,
2023
2022
$
128
$
186
Foreign currency translation gain25
3
-
-
Foreign currency translation gain
25
3
Unrealized gain (loss) from foreign currency hedging activities(4)
2
1
(1)
Unrealized gain (loss) from foreign currency hedging activities(3)
1
$
150
$
190
Our financial statements are denominated in the U.S. Dollar currency.Fluctuations in the value of foreigncurrencies as compared to the U.S. Dollar may have a significant impacton our comprehensive income.Theforeign 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 exchangerates of the Euro, British Pound, AustralianDollar, Brazilian Real, New Zealand Dollar and Canadian Dollar.
The following table summarizes our total comprehensive income, net ofapplicable taxes as follows:Three Months Ended
April 1,
March 26,
2023
2022
Comprehensive income attributable to
$
141
$
184
Comprehensive income attributable to
3
1
Comprehensive income attributable to
Redeemable noncontrolling interests6
5
$
150
$
190
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS(in millions, except share and per share data)
)
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
131,365,789
137,296,581
Effect of dilutive securities:
Stock options and restricted stock units
1,048,9191,674,097
1,940,891Diluted
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-dilutivesecurities excluded from EPS computation440,495
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-dilutivesecurities 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
(4)
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)
)
2630
Note 15 – Supplemental Cash Flow InformationCash 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, wehad $(4)
2
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
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
ScheinSchein One, LLC had a net payable balance due to Internet Brands of $
123
81
million, respectively,
comprisedcomprised 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 ofbusiness, during the three months ended
March 30, 2024 and April 1, 2023,
and March 26, 2022,
we recorded net sales of $
812
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
42
million respectively, from such entities.
At
April 1, 2023March 30, 2024 and December
31, 2022, we30, 2023,we had an aggregate of $
3431
3632
million, respectively, due from our equity affiliates, and $
6
$
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
917
years
.years.
As of
April 1, 2023,March 30, 2024, current and non-current liabilities
associated with related
party operating leases were
$
45
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 CoronavirusDisease 2019 (COVID-19)on us, our results of operations, liquidity and financial condition (includingany estimates of the impact on theseitems), the rate and consistency with which dental and other practicesresume or maintain normal operations in theUnited 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 impactthe resumption ofnormal operations, whether supply chain disruptions will adversely impactour business, the impact of integrationand restructuring programs as well as of any future acquisitions, general economicconditions including exchangerates, inflation and recession, and more generally current expectationsregarding performance in current and futureperiods.Forward looking statements also include the (i) our ability tohave continued access to a variety ofCOVID-19 test types and expectations regarding COVID-19test 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-19and any variants thereof, as well as other diseaseoutbreaks, epidemics, pandemics, or similar wide-spread public health concernsand other natural disasters; our
dependence on third parties for
the manufacture and supply of our products;
ourour 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 jointventures, 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 failureto achieve anticipated synergies/benefits, as wellas significant demands on our operations, information systems,legal, regulatory, compliance, financial and human resources functions in connection with acquisitions, dispositions andjoint ventures; certain provisions
in our
governing documents that may discourage third-party acquisitions
of us; adverse
changes in supplier rebates
oror other purchasing incentives; risks related to the sale of corporate brand products;
security risks associated with ourinformation systems and technology products and services, such ascyberattacks or other privacy or data security breaches (including the October 2023 incident); effects of a highly competitive
(including, withoutlimitation, (including, without limitation, competition from third-party online commerce
sites) and consolidating
market;
therepeal 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 tradeagreements, potential trade barriers and terrorism;
geopoliticalwars; failure to comply with
existing
and future regulatory
requirements; risks associated with the EU Medical
Device Regulation; failure
toto comply with laws and regulationsrelating 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 associatedwith disease outbreaks, epidemics, pandemics (such as the COVID-19pandemic), or similar wide-spread public health concerns and other natural or man-made disasters; risks associated with ourglobal operations; litigation risks; new or unanticipated litigation developments and the status
of litigation
matters;
risks associated with customs policies or legislative import restrictions; cyberattacksor other privacy or data security breaches; risksassociated 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, theirimpacts 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 experiencea decrease in the sales of PPE andCOVID-19 test kits compared with the same period in the prioryear and we expect further decreases in sales in2023 compared to the prior year.
The impact from inflation, including manufacturer price increases excluding PPEproducts, was slightly morepronounced in Europe than in North America.operations.
Though inflation impacts both our revenues and costs,
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 managementsolutions 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 beenremediated. During the three months ended March 30, 2024, we continuedto 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 reasonablyestimated 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
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
10,700are13,000 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 vitrodiagnostic devices, manufacture certain
dental specialty products in
the areas of implants, orthodontics and
endodontics,
manufacture drug products, and repackage/relabel prescription
drugsWe
have
achieved scale in these global businesses primarily through acquisitions,
as
asmanufacturers 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.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,pharmacologicaltreatments, 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 2024and
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 2034and approximately 11% between
20232024 and
2043.2044.According to the U.S. Census Bureau’s International Database, in
2023 2024there 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,andand/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 anddisposal of hazardous or potentiallyhazardous 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 ofthese businesses was suspended in October 2021 by CMS from receivingpayments from Medicare, although it waspermitted 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, handlingand disposal of hazardous or potentially hazardous substances; “forever chemicals” such as per-andpolyfluoroalkyl substances; amalgam bans; pricing disclosures; supply chain transparency around labor practices; and safe workingconditions.
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, orthoticsand supplies (“DMEPOS”) reimbursement schedule, which, effective January 1, 2024, reduced the DMEPOS reimbursementrates 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
2,1602,094
2,206
Gross profit
1,012966
973
Operating expenses:
Selling, general and administrative
791717
682
Depreciation and amortization
4461
4744
Restructuring costs
1030
-
Operating income
$
175150
$
244175
Other expense, net
$
(23)
$
(12)
$
(5)
Net income
12898
186128
Net income attributable to Henry Schein, Inc.
93121
181
Three Months Ended
March 30,
April 1,
March 26,2024
2023
2022
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 ofcompletion 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
amountsamounts expected to be incurred in connection with
these activities, both with
respect to each major type of cost
associatedassociated 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 millionand $30 million, respectively.
$30 millionThe restructuring costs for these periods primarily related to
severanceand 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 disposalof an unprofitable U.S. business,initiated during 2022 and completed during the three months ended April1, 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 growthare 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 andCOVID-19 test kits.For the three months ended March 30, 2024, the estimated decrease in internallygenerated 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 threemonths 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 ofExcluding PPE products and COVID-19 test kits,$20 million, or 10.0% versus the
increase ininternally generated local currency sales wasprior year, with the $20 million net decrease year-over-year representing 0.6% of6.3%.
Dental
Dentalglobal net sales for the three months ended
April 1, 2023 increased 3.8%based upon the components presented inthe table above.Our sales growth in local currency for dental merchandise was primarilyattributable to stablepatient traffic along with some price increases.Our sales growth in local currency for dental equipment wasprimarily attributable to growth in North America for traditional equipment,partially offset by a decrease in digitalequipment.International dental equipment sales growth in local currencywas supported by a strong equipmentbacklog.Sales of PPE products for the three months ended April 1, 2023were approximately $92 million, adecrease of approximately 35.8% versus the three months ended March
26,2022.Excluding PPE products, theincrease 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 ofBiotech Dental and S.I.N. during the year ended December 30, 2023.The decrease in internally generated local currency sales for dentalmerchandise 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 shiftinginto the first quarter of 2024 due to the delay of equipment installations during the fourth quarter of 2023resulting 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 forthe three months ended March 30, 2024.The decrease in sales of PPE products is primarily due to lowermarket prices and reduced demand following the cyber incident.The estimated decrease in internally generated local currencysales, 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 growthare presented in the table above.
The
increase in local currency sales was attributable to the acquisitionof 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 certainpharmaceutical product sales to lower
sales of PPEpricedproducts 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
forthe 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%.Thethe components
of our sales growth are presented in the table above.
During the three months ended April 1, 2023,The internally generated local currency increasein 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.Wealso experienced increased demand for our
revenue cycle management solutions
which drive practice efficiency and patient engagement.
The increase in salesduring the quarter ended April 1, 2023 was partially offset by the expiration, duringthe third quarter of 2022, of amodestly profitable government contract in one ofand our
value-added servicesbusinesses.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 networksthroughout ourindustry, our gross margins may not necessarily be comparable to other distribution companies.Additionally, werealize substantially higher gross margin percentages in our technology and value-added servicessegment than inour health care distribution segment.These higher gross margins result from being both the developer and seller ofsoftware products and services, as well as certain financial services.The software industry typically realizes highergross 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 inthe mix of products sold as well as changes in our customer mix have beenthe most significant drivers affectingour gross profit margin.For example, sales of our corporate brand products achievegross profit margins that arehigher 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 highervolumes sold as opposed to thegross margin on sales to office-based practitioners, who normally purchase lower volumes.Health care distribution gross profit decreased primarily due to the decreasein net sales discussed above, partiallyoffset 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 anincrease in gross margin ratesprimarily due to the impact of price increases.4.7
3640
As a result of different practices of categorizing costs associated with distribution networksthroughout 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 servicessegment 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 ofthe changes in the mix of products sold as well as changes in our customermix.For example, sales of our corporate brand and certain specialty products achieve gross profit margins that are higher thanaverage 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 March30, 2024 increased compared to the prior- year-period due to gross profit from acquisitions and gross margin expansion as a result of a favorableimpact of sales mix of higher-margin products, partially offset by the decrease in sales resulting fromthe residual impact of the cyber incident and a reduction in sales of PPE products and COVID-19test 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
$
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
$
2643
$
18(17)
$
223
$
4649
Technology and value-added services
4(6)
4(3)
831
1622
$
3037
$
22(20)
$
1054
$
6271
The restructuring costs are primarily related to severance and employee-relatedcosts, accelerated amortization ofright-of-use lease assets and fixed assets, and other lease exit costs.The increase in operating costs
during the three months ended March 30, 2024includes
increases in payroll and
payroll related costs, travel, and convention expenses
and acquisition costs in both of our
reportable
segments.
Whilesegments and increased acquisitionexpenses in our healthcare distribution segment and an increase in accrued contingentconsideration 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
foreignforeign income taxes and interest expense as well as stock-based compensation.expense.
The Organization of Economic Co-Operation and Development (OECD) issuedtechnical 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
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 thatadd 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
toto net cash provided by operating activities of
$93$27 million for the prioryear.The net change of $170 million was primarily attributable to changes in working capital accounts, primarilyaccounts 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 workingcapital, net of acquisitions, including an increase in operating cash flows from accounts receivable due to improvedcollection levels and decreased cash flows from accounts payable and accrued expenses resulting from previously delayedpayments. Net cash used in investing activities was $72 million for the threemonths 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
$27netcash provided by financing activities of $21 million for the prior year.
The net change of
$12$172 million was
primarily
attributable to increased paymentsforpurchases of fixed assets.
Net cash provided by financing activities was $21 million for thethree months ended April 1, 2023, compared tonet cash used in financing activities of $62 million for the prior year.The net change of $83 million was primarilydue to increased net borrowings from debt
to finance our investmentsand increased acquisitions ofnoncontrolling 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
1,7801,744
1,7641,805
Debt:
$
236264
$
103264
Current maturities of long-term debt
55103
6150
1,0212,010
1,0401,937
$
1,3122,377
$
1,1492,351
Leases:
Current operating lease liabilities
$
7375
$
7380
Non-current operating lease liabilities
274266
275310
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 from43.4 days as of April 1, 2023,
fromwhich was primarily attributable to41.6 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, 2024from 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$75million 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
commoncommon stock repurchase programs, with
$415$190 million available
as of
April 1, 2023March 30, 2024 for future common stock
share share repurchases.
Redeemable Noncontrolling Interests
Some minority stockholders in certain of our consolidated subsidiaries havethe 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 purchaseall or a portion of the outstanding interest in a consolidated subsidiary from the noncontrolling interest holderunder the terms of a put option contained in contractual agreements.As of March 30, 2024 and April 1, 2023, our balance forredeemable noncontrolling interests was $798 million and $864 million, respectively.Please see 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 adoptedas of January 1, 2023, which are discussed in
of the Notes to the Condensed Consolidated FinancialStatements 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
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
materialmaterial 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 notrepresentrepresents a material change in our
internal control over financial reporting.
During the quarter ended March 30, 2024, post-acquisition integration relatedactivities 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 includedin our condensed consolidated financial statements since their respective dates of acquisition. In addition, we completed systems implementation activities relatedto 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 activityinvolve necessary and appropriate change-management controls that are considered in our quarterly assessment ofthe design and operating effectiveness of our internal control over financial reporting.
The deficiencies in internal control over financial reporting identifiedas of December 30, 2023 at the application control level related to logical and user access management and segregationof duties have been the subject of ongoing review and the development and implementation of specificremediation action plans, including the testing and validation of control operating effectiveness, which is expected to be completedprior 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
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
a Rule10b5-1 trading arrangement which is a trading plan forthe 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 daysor 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
March 7, 2024
, Mr. Siegel adopted the trading plan to sell
4,134
a limit order at a specified price, with a term through
March 7, 2025
.
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
ExhibitExhibit 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