Henry Schein 10Q 2022 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-Q

(Mark One)

☒

QUARTERLY

REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

OF 1934

For the

quarterly

period ended

March 26, 2022

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT

OF 1934

For the transition period from ____________ to ____________

Commission File Number:

0-27078

HENRY SCHEIN, INC.

(Exact name of registrant as specified in its charter)

Delaware

11-3136595

(State or other jurisdiction of

(I.R.S. Employer Identification No.)

incorporation or organization)

135 Duryea Road

Melville

New York

(Address of principal executive offices)

11747

(Zip Code)

(

631

)

843-5500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $.01 per share

HSIC

The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required

to be filed by Section 13 or 15(d) of the Securities

Exchange Act of 1934 during the preceding 12 months (or for such

shorter period that the registrant was required to file such

reports), and (2) has been subject to such filing requirements for the

past 90 days.

Yes

☒

☐

Indicate by

check mark

whether the registrant

has submitted

electronically every Interactive

Data File

required to

be submitted

pursuant

Rule

405

Regulation

S-T

during

the

preceding

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,

emerging

growth

company.

See

the

definitions

“large

accelerated

filer,”

“accelerated

filer,”

“smaller reporting company,” and “emerging growth company”

in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period

for

complying with any new or revised financial accounting standards provided

pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (as defined

in Rule 12b-2 of the Exchange Act).

Yes

☐

☒

As of April 25, 2022,

there were

138,050,781

shares of the registrant’s common stock outstanding.

HENRY SCHEIN, INC.

INDEX

PART I. FINANCIAL INFORMATION

Page

ITEM 1.

Condensed Consolidated Financial Statements:

Condensed Balance Sheets as of March 26, 2022 and December 25, 2021

Condensed Statements of Income for the three months ended

March 26, 2022 and March 27, 2021

Condensed Statements of Comprehensive Income for the three months ended

March 26, 2022 and March 27, 2021

Condensed Statement of Changes in Stockholders' Equity for the three months ended

March 26, 2022 and March 27, 2021

Condensed Statements of Cash Flows for the three months ended

March 26, 2022 and March 27, 2021

Notes to Consolidated Financial Statements

Note 1 – Basis of Presentation

Note 2 – Critical Accounting Policies, Accounting Pronouncements Adopted

and Recently Issued Accounting Standards

Note 3 – Revenue from Contracts with Customers

Note 4 – Segment Data

Note 5 – Business Acquisitions

Note 6 – Fair Value Measurements

Note 7 – Debt

Note 8 – Income Taxes

Note 9 – Legal Proceedings

Note 10 – Stock-Based Compensation

Note 11 – Redeemable Noncontrolling Interests

Note 12 – Comprehensive Income

Note 13 – Plans of Restructuring

Note 14 – Earnings Per Share

Note 15 – Supplemental Cash Flow Information

Note 16 – Related Party Transactions

ITEM 2.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

ITEM 4.

Controls and Procedures

PART II. OTHER INFORMATION

Unregistered Sales of Equity Securities and Use of Proceeds

See accompanying notes.

PART

I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

HENRY SCHEIN, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions,

except share data)

March 26,

December 25,

2022

2021

(unaudited)

ASSETS

Current assets:

Cash and cash equivalents

126

118

Accounts receivable, net of reserves of $

and $

1,444

1,452

Inventories, net

1,871

1,861

Prepaid expenses and other

389

413

Total current assets

3,830

3,844

Property and equipment, net

358

366

Operating lease right-of-use assets

331

325

Goodwill

2,857

2,854

Other intangibles, net

644

668

Investments and other

427

424

Total assets

8,447

8,481

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

914

1,054

Bank credit lines

Current maturities of long-term debt

Operating lease liabilities

Accrued expenses:

Payroll and related

326

385

Taxes

174

137

Other

561

593

Total current liabilities

2,144

2,307

Long-term debt

773

811

Deferred income taxes

Operating lease liabilities

277

268

Other liabilities

376

377

Total liabilities

3,610

3,805

Redeemable noncontrolling interests

613

Commitments and contingencies

(nil)

Stockholders' equity:

Preferred stock, $

0.01

par value,

1,000,000

shares authorized,

NaN

outstanding

Common stock, $

0.01

par value,

480,000,000

shares authorized,

137,708,809

outstanding on March 26, 2022 and

137,145,558

outstanding on December 25, 2021

Additional paid-in capital

Retained earnings

3,759

3,595

Accumulated other comprehensive loss

(168)

(171)

Total Henry Schein, Inc. stockholders' equity

3,592

3,425

Noncontrolling interests

632

638

Total stockholders' equity

4,224

4,063

Total liabilities, redeemable noncontrolling

interests and stockholders' equity

8,447

8,481

Table of Contents

See accompanying notes.

HENRY SCHEIN, INC.

CONDENSED CONSOLIDATED STATEMENTS

OF INCOME

(unaudited, in millions, except share and per share data)

Three Months Ended

March 26,

March 27,

2022

2021

Net sales

3,179

2,925

Cost of sales

2,206

2,034

Gross profit

973

891

Operating expenses:

Selling, general and administrative

682

614

Depreciation and amortization

Restructuring costs

Operating income

244

230

Other income (expense):

Interest income

Interest expense

(7)

(6)

Income before taxes, equity in earnings of affiliates and noncontrolling interests

239

226

Income taxes

(57)

Equity in earnings of affiliates

Net income

186

175

Less: Net income attributable to noncontrolling interests

(5)

(9)

Net income attributable to Henry Schein, Inc.

181

166

Earnings per share attributable to Henry Schein, Inc.:

Basic

1.31

1.17

Diluted

1.30

1.16

Weighted-average common

shares outstanding:

Basic

137,296,581

142,298,387

Diluted

139,237,472

143,397,724

Table of Contents

See accompanying notes.

HENRY SCHEIN, INC.

CONDENSED CONSOLIDATED STATEMENTS

OF COMPREHENSIVE INCOME

(unaudited, in millions)

Three Months Ended

March 26,

March 27,

2022

2021

Net income

186

175

Other comprehensive income (loss), net of tax:

Foreign currency translation gain (loss)

(38)

Unrealized gain from foreign currency hedging activities

Pension adjustment gain

Other comprehensive income (loss), net of tax

(34)

Comprehensive income

190

141

Comprehensive income attributable to noncontrolling interests:

Net income

(5)

(9)

Foreign currency translation (gain) loss

(1)

Comprehensive income attributable to noncontrolling interests

(6)

(3)

Comprehensive income attributable to Henry Schein, Inc.

184

138

Table of Contents

See accompanying notes.

HENRY SCHEIN, INC.

CONDENSED CONSOLIDATED STATEMENT

OF CHANGES IN

STOCKHOLDERS’ EQUITY

(unaudited, in millions, except share data)

Accumulated

Common Stock

Additional

Other

Total

$0.01 Par Value

Paid-in

Retained

Comprehensive

Noncontrolling

Stockholders'

Amount

Capital

Earnings

Income / (Loss)

Interests

Equity

Balance, December 25, 2021

137,145,558

3,595

(171)

638

4,063

Net income (excluding $

attributable to Redeemable

noncontrolling interests)

181

182

Foreign currency translation gain (excluding gain of $

attributable to Redeemable noncontrolling interests)

Unrealized gain from foreign currency hedging activities,

net of tax of $

Purchase of noncontrolling interests

(7)

Change in fair value of redeemable securities

(3)

Stock-based compensation expense

876,161

Stock issued upon exercise of stock options

26,233

Shares withheld for payroll taxes

(336,331)

(28)

Settlement of stock-based compensation awards

(2,812)

Transfer of charges in excess of

capital

(17)

Balance, March 26, 2022

137,708,809

3,759

(168)

632

4,224

Accumulated

Common Stock

Additional

Other

Total

$0.01 Par Value

Paid-in

Retained

Comprehensive

Noncontrolling

Stockholders'

Amount

Capital

Earnings

Income / (Loss)

Interests

Equity

Balance, December 26, 2020

142,462,571

3,455

(108)

636

3,984

Net income (excluding $

attributable to Redeemable

noncontrolling interests)

166

168

Foreign currency translation loss (excluding loss of $

attributable to Redeemable noncontrolling interests)

(32)

Unrealized gain from foreign currency hedging activities,

net of tax of $

Pension adjustment gain, net of tax of $

Change in fair value of redeemable securities

(46)

Initial noncontrolling interests and adjustments related

business acquisitions

Repurchase and retirement of common stock

(1,325,242)

(12)

(77)

(89)

Stock-based compensation expense

281,645

Settlement of stock-based compensation awards

Shares withheld for payroll taxes

(108,861)

(7)

Transfer of charges in excess of

capital

(51)

Balance, March 27, 2021

141,310,113

3,493

(136)

639

3,997

Table of Contents

See accompanying notes.

HENRY SCHEIN, INC.

CONDENSED CONSOLIDATED STATEMENTS

OF CASH FLOWS

(unaudited, in millions)

Three Months Ended

March 26,

March 27,

2022

2021

Cash flows from operating activities:

Net income

186

175

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

Stock-based compensation expense

Provision for (benefit from) losses on trade and other accounts receivable

(3)

Provision for (benefit from) deferred income taxes

(3)

Equity in earnings of affiliates

(4)

(6)

Distributions from equity affiliates

Changes in unrecognized tax benefits

Other

(7)

Changes in operating assets and liabilities, net of acquisitions:

Accounts receivable

119

Inventories

(9)

(78)

Other current assets

(45)

Accounts payable and accrued expenses

(188)

(180)

Net cash provided by operating activities

Cash flows from investing activities:

Purchases of fixed assets

(19)

(14)

Payments related to equity investments and business

acquisitions, net of cash acquired

(5)

(204)

Proceeds from loan to affiliate

Other

(7)

(5)

Net cash used in investing activities

(27)

(223)

Cash flows from financing activities:

Net change in bank borrowings

Principal payments for long-term debt

(53)

(18)

Proceeds from issuance of stock upon exercise of stock options

Payments for repurchases and retirement of common stock

(89)

Payments for taxes related to shares withheld for employee taxes

(26)

(6)

Distributions to noncontrolling shareholders

(5)

(7)

Acquisitions of noncontrolling interests in subsidiaries

(10)

Net cash used in financing activities

(62)

(120)

Effect of exchange rate changes on cash and cash equivalents

Net change in cash and cash equivalents

(277)

Cash and cash equivalents, beginning of period

118

421

Cash and cash equivalents, end of period

126

144

Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(in millions, except share and per share data)

(unaudited

)

Note 1 – Basis of Presentation

Our condensed consolidated financial statements include the accounts of Henry

Schein, Inc. and all of our

controlled subsidiaries.

All intercompany accounts and transactions are eliminated

in consolidation.

Investments

in unconsolidated affiliates in which we have the ability to influence the operating

or financial decisions are

accounted for under the equity method.

Certain prior period amounts have been reclassified to conform

to the

current period presentation.

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 25, 2021 and with the information

contained in our other publicly-

available filings with the Securities and Exchange Commission.

The condensed consolidated financial statements

reflect all adjustments considered necessary for a fair presentation of the

consolidated results of operations and

financial position for the interim periods presented.

All such adjustments are of a normal recurring nature.

The preparation of financial statements in conformity with accounting principles

generally accepted in the United

States requires us to make estimates and assumptions that affect the reported amounts of

assets and liabilities and

disclosure of contingent assets and liabilities at the date of the financial statements

and the reported amounts of

revenues and expenses during the reporting period.

Actual results could differ from those estimates.

The results of

operations for the three months ended March 26, 2022 are not necessarily

indicative of the results to be expected

for any other interim period or for the year ending December 31, 2022.

We consolidate the results of operations and financial position of a trade accounts receivable securitization which

we consider a Variable Interest Entity (“VIE”) because we are the primary beneficiary, and we have the power to

direct activities that most significantly affect the economic performance and have

the obligation to absorb the

majority of the losses or benefits.

For this VIE, the trade accounts receivable transferred to the VIE are

pledged as

collateral to the related debt.

The creditors have recourse to us for losses on these trade accounts

receivable.

March 26, 2022 and December 25, 2021, certain trade accounts receivable

that can only be used to settle

obligations of this VIE were $

million and $

138

million, respectively, and the liabilities of this VIE where the

creditors have recourse to us were $

million and $

105

million, respectively.

Our condensed consolidated financial statements reflect estimates and assumptions

made by us that affect, among

other things, our goodwill, long-lived asset and definite-lived intangible

asset valuation; inventory valuation; equity

investment valuation; assessment of the annual effective tax rate; valuation of deferred

income taxes and income

tax contingencies; the allowance for doubtful accounts; hedging activity;

supplier rebates; measurement of

compensation cost for certain share-based performance awards and cash bonus

plans; and pension plan

assumptions.

Due to the significant uncertainty surrounding the future impact of

COVID-19, our judgments

regarding estimates and impairments could change in the future and

may result in a material adverse effect on our

financial condition and liquidity.

However, the extent of the potential impact cannot be reasonably estimated at this

time.

Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(in millions, except share and per share data)

(unaudited

)

Note 2 – Critical Accounting Policies, Accounting Pronouncements Adopted

and Recently Issued Accounting

Standards

Critical Accounting Policies

There have been no material changes in our critical accounting policies

during the three months ended March 26,

2022, as compared to the critical accounting policies described in Item

7 of our Annual Report on Form 10-K for

the year ended December 25, 2021, except as follows:

Accounting Pronouncements Adopted

December 26, 2021

we adopted Accounting Standards Update (“ASU”) No. 2021 – 08, “Accounting

for

Contract Assets and Contract Liabilities from Contracts with Customers”

(Subtopic 805), as early adoption of this

ASU was permitted.

ASU 2021 – 08 requires an acquirer to recognize and measure

contract assets and contract

liabilities acquired in a business combination in accordance with Topic 606.

At the acquisition date, an acquirer

should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts.

To achieve this, an acquirer may assess how the acquiree applied Topic 606 to determine what to record for the

acquired revenue contracts.

Generally, this should result in an acquirer recognizing and measuring the acquired

contract assets and contract liabilities consistent with how

they were recognized and measured in the acquiree’s

financial statements.

Our

adoption

of ASU 2021 - 08 did not have a material impact on our consolidated

financial

statements.

Recently Issued Accounting Standards

In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2020-04, “Reference Rate

Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” which provides

optional expedients and exceptions for applying U.S. GAAP to contracts,

hedging relationships and other

transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or

by another

reference rate expected to be discontinued because of reference rate reform.

The guidance was effective beginning

March 12, 2020 and can be applied prospectively through December 31,

2022.

In January 2021, the FASB issued

ASU 2021-01, Reference Rate Reform (Topic 848): Scope (“ASU 2021-01”).

ASU 2021-01 provides temporary

optional expedients and exceptions to certain guidance in U.S. GAAP

to ease the financial reporting burdens related

to the expected market transition from LIBOR and other interbank offered rates

to alternative reference rates, such

as the Secured Overnight Financing Rate.

The guidance is effective upon issuance, on January 7, 2021, and can be

applied through December 31, 2022.

We do not expect that the requirements of this guidance will have a material

impact on our consolidated financial statements.

In March 2022, the FASB issued ASU No. 2022-01, “Derivatives and Hedging (Topic 815): Fair Value

Hedging –

Portfolio Layer Method,” which will expand companies' abilities

to hedge the benchmark interest rate risk of

portfolios of financial assets (or beneficial interests) in a fair value hedge.

This ASU expands the use of the

portfolio layer method (previously referred to as the last-of-layer

method) to allow multiple hedges of a single

closed portfolio of assets using spot starting, forward starting and amortizing-notional

swaps.

It also permits both

prepayable and non-prepayable financial assets to be included in the closed

portfolio of assets hedged in a portfolio

layer hedge.

This ASU further requires that basis adjustments not be allocated

to individual assets for active

portfolio layer method hedges, but rather be maintained on the closed portfolio

of assets as a whole.

ASU 2022 –

01 is effective for fiscal years beginning after December 15, 2022, including interim periods

within those fiscal

years.

Early adoption is permitted for any entity that has adopted the amendments

in ASU 2017-12.

We do not

expect that the requirements of this guidance will have a material impact

on our consolidated financial statements.

In March 2022, the FASB issued ASU No. 2022-02, “Financial Instruments – Credit Losses (Topic 326): Troubled

Debt Restructuring and Vintage Disclosures”.

The amendments in this ASU eliminate the accounting guidance

for

troubled debt restructurings by creditors that have adopted the Current Expected

Credit Losses model and enhance

Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(in millions, except share and per share data)

(unaudited

)

the disclosure requirements for loan refinancings and restructurings

made with borrowers experiencing financial

difficulty.

In addition, the amendments require a public business entity

to disclose current-period gross write-offs

for financing receivables and net investment in leases by year of origination

in the vintage disclosures.

ASU 2022

– 02 is effective for fiscal years beginning after December 15, 2022, including

interim periods within those fiscal

years.

Early adoption is permitted for any entity that has adopted the amendments

in ASU No. 2016-13, “Financial

Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”.

We do not

expect that the requirements of this guidance will have a material impact on our

consolidated financial statements.

Note 3 – Revenue from Contracts with Customers

Revenue is recognized in accordance with policies disclosed in Item 8 of our

Annual Report on Form 10-K for

the year ended December 25, 2021.

Disaggregation of Net Sales

The following table disaggregates our Net sales by reportable segment and geographic

area:

Three Months Ended

March 26, 2022

North America

International

Global

Revenues:

Health care distribution

Dental

1,105

723

1,828

Medical

1,150

1,172

Total health care distribution

2,255

745

3,000

Technology

and value-added services

156

179

Total revenues

2,411

768

3,179

Three Months Ended

March 27, 2021

North America

International

Global

Revenues:

Health care distribution

Dental

1,045

744

1,789

Medical

963

991

Total health care distribution

2,008

772

2,780

Technology

and value-added services

124

145

Total revenues

2,132

793

2,925

At December 25, 2021, the current portion of contract liabilities of $

million was reported in Accrued expenses:

Other, and $

million related to non-current contract liabilities was reported

in Other liabilities.

During the three

months ended March 26, 2022, we recognized in revenue $

million of the amounts that were previously deferred

at December 25, 2021.

At March 26, 2022, the current and non-current portion of contract liabilities

were $

million and $

million, respectively.

Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(in millions, except share and per share data)

(unaudited

)

Note 4

–

Segment Data

We conduct our business through

reportable segments: (i) health care distribution and (ii) technology

and

value-added services. These segments offer different products and services to the same customer

base. Our global

dental businesses serve office-based dental practitioners, dental laboratories, schools and

other institutions. Our

global medical businesses serve office-based medical practitioners, ambulatory

surgery centers, other alternate-care

settings and other institutions. Our global dental and medical groups serve

practitioners in

countries worldwide.

The health care distribution reportable segment aggregates our global

dental and medical operating segments. This

segment distributes consumable products, dental specialty products,

small equipment, laboratory products, large

equipment, equipment repair services, branded and generic pharmaceuticals,

vaccines, surgical products, diagnostic

tests, infection-control products, personal protective equipment (“PPE”)

and vitamins.

Our global technology and value-added services reportable segment provides

software, technology and other value-

added services to health care practitioners. Our technology offerings include practice management

software systems

for dental and medical practitioners. Our value-added practice solutions

include practice consultancy, education,

revenue cycle management and financial services on a non-recourse basis,

e-services, practice technology, network

and hardware services, as well as continuing education services for practitioners.

The following tables present information about our reportable and operating

segments:

Three Months Ended

March 26,

March 27,

2022

2021

Net Sales:

Health care distribution

(1)

Dental

1,828

1,789

Medical

1,172

991

Total health care distribution

3,000

2,780

Technology

and value-added services

(2)

179

145

Total

3,179

2,925

(1)

Consists of consumable products, small equipment, laboratory products, large equipment, equipment repair services, branded and

generic pharmaceuticals, vaccines, surgical products, dental specialty products (including implant, orthodontic and endodontic

products), diagnostic tests, infection-control products, PPE and vitamins.

(2)

Consists of practice management software and other value-added products, which are distributed primarily to health care providers,

practice consultancy, education, revenue cycle management and financial services on a non-recourse basis, e-services, continuing

education services for practitioners, consulting and other services.

Three Months Ended

March 26,

March 27,

2022

2021

Operating Income:

Health care distribution

211

197

Technology

and value-added services

Total

244

230

Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(in millions, except share and per share data)

(unaudited

)

Note 5

–

Business Acquisitions

2022 Acquisitions

During the three months ended March 26, 2022,

we made an acquisition within the technology and value-added

services segment.

The impact of this acquisition was not considered material to our

condensed consolidated

financial statements.

2021 Acquisitions

We completed acquisitions during the three months ended March 27, 2021 which were immaterial to our financial

statements.

Our ownership interest acquired ranges between approximately

% to

100

Acquisitions within our

health care distribution segment included

companies that specialize in distribution of dental products, a provider

home medical supplies, and product kitting and sterile packaging.

Within our technology and value-added services

segment, we acquired companies that focus on dental marketing and website

solutions, practice transition services,

and business analytics and intelligence software.

The following table aggregates the estimated fair value, as of the

date of acquisition, of consideration paid and net

assets acquired for acquisitions during the three months ended March 27, 2021.

While we use our best estimates

and assumptions to accurately value those assets acquired and liabilities

assumed at the acquisition date as well as

contingent consideration, where applicable, our estimates are inherently uncertain

and subject to refinement.

As a

result, during the measurement period we may record adjustments

to the assets acquired and liabilities assumed

with the corresponding offset to goodwill within our consolidated balance sheets.

Acquisition consideration:

Cash

212

Deferred consideration

Redeemable noncontrolling interests

Total consideration

289

Identifiable assets acquired and liabilities assumed:

Current assets

Intangible assets

151

Other noncurrent assets

Current liabilities

(32)

Deferred income taxes

(9)

Other noncurrent liabilities

(22)

Total identifiable

net assets

194

Goodwill

Total net assets acquired

289

Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(in millions, except share and per share data)

(unaudited

)

The following table summarizes the identifiable intangible assets acquired

during the quarter ended March 27, 2021

and their estimated useful lives as of the date of the acquisition:

Estimated

Useful Lives

(in years)

Trademark / Tradename

Non-compete agreements

Customer relationships and lists

120

Product development

Total

151

The major classes of assets and liabilities that we generally allocate purchase

price to, excluding goodwill, include

identifiable intangible assets (i.e., customer relationships and lists, trademarks

and trade names, product

development and non-compete agreements), inventory and accounts

receivable, property, plant and equipment,

deferred taxes and other current and long-term assets and liabilities.

The estimated fair value of identifiable

intangible assets is based on critical estimates, judgments and assumptions

derived from analysis of market

conditions, discount rates, discounted cash flows, customer retention rates

and estimated useful lives.

Some prior owners of acquired subsidiaries are eligible to receive additional

purchase price cash consideration if

certain financial targets are met.

We have accrued liabilities for the estimated fair value of additional purchase

price consideration at the time of the acquisition.

Any adjustments to these accrual amounts are recorded in our

consolidated statements of income.

For the three months ended March 26, 2022 and March 27, 2021, there were

material adjustments recorded in our consolidated statements of income

relating to changes in estimated contingent

purchase price liabilities.

Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(in millions, except share and per share data)

(unaudited

)

Note 6 – Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or

paid to transfer a liability in an orderly

transaction between market participants at the measurement date.

The fair value hierarchy distinguishes between

(1) market participant assumptions developed based on market data obtained

from independent sources (observable

inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best

information available in the circumstances (unobservable inputs).

The fair value hierarchy consists of three broad levels, which gives the

highest priority to unadjusted quoted prices

in active markets for identical assets or liabilities (Level 1) and the lowest priority

to unobservable inputs (Level 3).

The three levels of the fair value hierarchy are described as follows:

•

Level 1— Unadjusted quoted prices in active markets for identical assets

or liabilities that are accessible at the

measurement date.

•

Level 2— Inputs other than quoted prices included within Level 1 that are observable

for the asset or liability,

either directly or indirectly.

Level 2 inputs include: quoted prices for similar assets or liabilities

in active markets;

quoted prices for identical or similar assets or liabilities in markets that are

not active; inputs other than quoted

prices that are observable for the asset or liability; and inputs that are

derived principally from or corroborated by

observable market data by correlation or other means.

•

Level 3— Inputs that are unobservable for the asset or liability.

The following section describes the fair values of our financial instruments

and the methodologies that we used to

measure their fair values.

Investments and notes receivable

There are no quoted market prices available for investments in unconsolidated

affiliates and notes receivable;

however, we believe the carrying amounts are a reasonable estimate of fair value based on the interest

rates in the

applicable markets.

Debt

The fair value of our debt (including bank credit lines) is classified as

Level 3 within the fair value hierarchy, and

as of March 26, 2022 and December 25, 2021 was estimated at $

866

million and $

873

million, respectively.

Factors that we considered when estimating the fair value of our debt

included market conditions, such as interest

rates and credit spreads.

Derivative contracts

Derivative contracts are valued using quoted market prices and

significant other observable inputs.

We use

derivative instruments to minimize our exposure to fluctuations in foreign

currency exchange rates.

Our derivative

instruments primarily include foreign currency forward agreements related

to certain intercompany loans, certain

forecasted inventory purchase commitments with foreign suppliers,

foreign currency forward contracts to hedge a

portion of our euro-denominated foreign operations which are designated

as net investment hedges and a total

return swap for the purpose of economically hedging our unfunded

non-qualified supplemental executive retirement

plan and our deferred compensation plan.

The fair values for the majority of our foreign currency derivative contracts

are obtained by comparing our contract

rate to a published forward price of the underlying market rates, which

is based on market rates for comparable

transactions and are classified within Level 2 of the fair value hierarchy.

Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(in millions, except share and per share data)

(unaudited

)

Redeemable noncontrolling interests

The values for Redeemable noncontrolling interests are classified within

Level 3 of the fair value hierarchy and are

based on recent transactions and/or implied multiples of earnings.

See

Note 11–Redeemable Noncontrolling

Interests

for additional information.

The following table presents our assets and liabilities that are measured and

recognized at fair value on a recurring

basis classified under the appropriate level of the fair value hierarchy as of

March 26, 2022 and December 25,

2021:

March 26, 2022

Level 1

Level 2

Level 3

Total

Assets:

Derivative contracts designated as hedges

Derivative contracts undesignated

Total return

swaps

Total assets

Liabilities:

Derivative contracts designated as hedges

Derivative contracts undesignated

Total liabilities

Redeemable noncontrolling interests

613

December 25, 2021

Level 1

Level 2

Level 3

Total

Assets:

Derivative contracts designated as hedges

Derivative contracts undesignated

Total return

swaps

Total assets

Liabilities:

Derivative contracts designated as hedges

Derivative contracts undesignated

Total liabilities

Redeemable noncontrolling interests

613

Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(in millions, except share and per share data)

(unaudited

)

Note 7 – Debt

Bank Credit Lines

Bank credit lines consisted of the following:

March 26,

December 25,

2022

2021

Revolving credit agreement

Other short-term bank credit lines

Total

Revolving Credit Agreement

August 20, 2021

, we entered into a new $

billion revolving credit agreement (the “Credit Agreement”).

This

facility, which matures on

August 20, 2026

, replaced our $

750

million revolving credit facility, which was

scheduled to mature in April 2022.

The interest rate is based on the USD LIBOR plus a spread based on our

leverage ratio at the end of each financial reporting quarter.

Most LIBOR rates have been discontinued after

December 31, 2021, while the remaining LIBOR rates will be discontinued

immediately after June 30, 2023.

do not expect the discontinuation of LIBOR as a reference rate in our

debt agreements to have a material adverse

effect on our financial position or to materially affect our interest expense.

The Credit Agreement also requires,

among other things, that we maintain certain maximum leverage ratios.

Additionally, the Credit Agreement

contains customary representations, warranties and affirmative covenants as well

as customary negative covenants,

subject to negotiated exceptions, on liens, indebtedness, significant corporate

changes (including mergers),

dispositions and certain restrictive agreements.

As of March 26, 2022 and December 25, 2021, we had

borrowings under this revolving credit facility.

As of March 26, 2022 and December 25, 2021, there were $

million and $

million of letters of credit, respectively, provided to third parties under the credit facility.

Other Short-Term Bank Credit

Lines

As of March 26, 2022 and December 25, 2021, we had various other short-term

bank credit lines available, of

which $

million and $

million, respectively, were outstanding.

At March 26, 2022 and December 25, 2021,

borrowings under all of these credit lines had a weighted average interest

rate of

8.91

% and

10.44

%, respectively.

Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(in millions, except share and per share data)

(unaudited

)

Long-term debt

Long-term debt consisted of the following:

March 26,

December 25,

2022

2021

Private placement facilities

699

706

U.S. trade accounts receivable securitization

105

Various

collateralized and uncollateralized loans payable with interest,

in varying installments through 2023 at interest rates

ranging from

% to

4.27

% at March 26, 2022 and

ranging from

2.62

% to

4.27

% at December 25, 2021

Finance lease obligations

Total

776

822

Less current maturities

(3)

(11)

Total long-term debt

773

811

Private Placement Facilities

Our private placement facilities were amended on

October 20, 2021

to include

(previously

) insurance

companies, have a total facility amount of $

1.5

billion (previously $

1.0

billion), and are available on an

uncommitted basis at fixed rate economic terms to be agreed upon at

the time of issuance, from time to time

through

October 20, 2026

(previously

June 23, 2023

The facilities allow us to issue senior promissory notes to

the lenders at a fixed rate based on an agreed upon spread over applicable

treasury notes at the time of

issuance.

The term of each possible issuance will be selected by us and

can range from

five

15 years

(with an

average life no longer than

12 years

The proceeds of any issuances under the facilities will be used for

general

corporate purposes, including working capital and capital expenditures,

to refinance existing indebtedness, and/or

to fund potential acquisitions.

The agreements provide, among other things, that we maintain

certain maximum

leverage ratios, and contain restrictions relating to subsidiary indebtedness,

liens, affiliate transactions, disposal of

assets and certain changes in ownership.

These facilities contain make-whole provisions in the event that we

pay

off the facilities prior to the applicable due dates.

The components of our private placement facility borrowings as

of March 26, 2022 are presented in the following

table:

Amount of

Borrowing

Date of Borrowing

Outstanding

Rate

Due Date

January 20, 2012

3.45

January 20, 2024

December 24, 2012

3.00

December 24, 2024

June 16, 2017

100

3.42

June 16, 2027

September 15, 2017

100

3.52

September 15, 2029

January 2, 2018

100

3.32

January 2, 2028

September 2, 2020

100

2.35

September 2, 2030

June 2, 2021

100

2.48

June 2, 2031

June 2, 2021

100

2.58

June 2, 2033

Less: Deferred debt issuance costs

(1)

Total

699

Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(in millions, except share and per share data)

(unaudited

)

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

three years

Our current facility, which

had a purchase limit of $

350

million, was scheduled to expire on

April 29, 2022

On October 20, 2021, we

amended our U.S. trade accounts receivable securitization facility to

increase the purchase limit to $

450

million

with

banks as agents and extend the expiration date to

October 18, 2024

As of March 26, 2022 and December

25, 2021, the borrowings outstanding under this securitization facility were

million and $

105

million,

respectively.

At March 26, 2022, the interest rate on borrowings under

this facility was based on the asset-backed

commercial paper rate of

0.53

% plus

0.75

%, for a combined rate of

1.28

At December 25, 2021, the interest rate

on borrowings under this facility was based on the asset-backed commercial

paper rate of

0.19

% plus

0.75

%, for a

combined rate of

0.94

If our accounts receivable collection pattern changes due to customers

either paying late or not making payments,

our ability to borrow under this facility may be reduced.

We are required to pay a commitment fee of

basis points depending upon program utilization.

Note 8 – Income Taxes

For the three months ended March 26, 2022 our effective tax rate was

24.0

% compared to

25.1

% for the prior year

period.

The difference between our effective tax rates and the federal statutory tax rate for

the three months ended

March 26, 2022 primarily relates to state and foreign income taxes and

interest expense as well as share-based

compensation.

The difference between our effective tax rate and the federal statutory tax rate for the three

months

ended March 27, 2021 was primarily due to state and foreign income

taxes and interest expense.

The total amount of unrecognized tax benefits, which are included in

“other liabilities” within our consolidated

balance sheets, as of March 26, 2022 and December 25, 2021 was $

million and $

million, respectively of

which $

million and $

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 consolidated statements of income.

All tax returns audited by the IRS are officially closed through 2016.

The tax years subject to examination by the

IRS include years 2017 and forward.

During the quarter ended December 25, 2021, we were notified

by the IRS

that tax year 2019 was selected for examination.

During the quarter ended September 26, 2020 we reached an agreement

with the Advanced Pricing Division on an

appropriate transfer pricing methodology for the years 2014-2025.

The objective of this resolution was to mitigate

future transfer pricing audit adjustments.

The total amounts of interest and penalties are classified as a component

of the provision for income taxes.

The

amount of tax interest expense was $

million for each of the three months ended March 26, 2022 and March

27,

2021.

The total amount of accrued interest is included in “Other liabilities,”

and was $

million as of March 26,

2022 and $

million as of December 25, 2021.

NaN

penalties were accrued for the periods presented.

Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(in millions, except share and per share data)

(unaudited

)

Note 9 – Legal Proceedings

Henry Schein has been named as a defendant in multiple lawsuits (currently

less than one-hundred and seventy-five

(

175

); in less than half of those cases one or more of Schein’s affiliated companies is also named as a defendant),

which

lawsuits allege that 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.) reaped financial rewards by refusing or otherwise failing to monitor appropriately and restrict

the improper 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 abated for discovery purposes, and others

which remain pending in state courts

and are proceeding independently and outside of the MDL.

At this time, the only cases set for trial are: the action

filed by Mobile County Board of Health, et al., in Alabama state court, which

is currently set for a jury trial on

January 9, 2023; and the action filed by DCH Health Care Authority, et al. in Alabama state court, which is

currently scheduled for a jury trial on March 20, 2023.

The court for the pending cases filed by hospitals in West

Virginia has indicated that it intends to set trials for all defendants in 2022.

However, as of this filing, the West

Virginia hospital cases against Henry Schein have not been set for trial.

Of Henry Schein’s 2021 sales of

approximately $

12.4

billion, sales of opioids represented less than two-tenths of

percent.

Opioids represent a

negligible part of our business.

We intend to defend ourselves vigorously against these actions.

From time to time, we may become a party to other legal proceedings,

including, without limitation, product

liability claims, employment matters, commercial disputes, governmental

inquiries and investigations (which may

in some cases involve our entering into settlement arrangements or consent

decrees), and other matters arising out

of the ordinary course of our business.

While the results of any legal proceeding cannot be predicted with certainty,

in our opinion none of these other pending matters are currently anticipated

to have a material adverse effect on our

consolidated financial position, liquidity or results of operations.

As of March 26, 2022, 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.

Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(in millions, except share and per share data)

(unaudited

)

Note 10 – Stock-Based Compensation

Stock-based awards are provided to certain employees under the terms of

our 2020 Stock Incentive Plan and to

non-employee directors under the terms of our 2015 Non-Employee Director

Stock Incentive Plan (together, the

“Plans”).

The Plans are administered by the Compensation Committee of the Board

of Directors (the

“Compensation Committee”).

Historically, equity-based awards to our employees have been granted solely in the

form of time-based and performance-based restricted stock units (“RSUs”).

However, for our 2021 fiscal year, in

light of the COVID-19 pandemic, the Compensation Committee determined

it would be difficult for management

to set a meaningful three-year cumulative earnings per share target as the goal applicable

to performance-based

restricted stock unit awards as it had done in prior years.

Instead, the Compensation Committee set our equity-

based awards to employees for fiscal 2021 in the form of time-based RSUs

and non-qualified stock options which

focus on stock value appreciation and retention instead of pre-established

performance goals.

Our non-employee

directors continued to receive equity-based wards for fiscal 2021 solely in

the form of time-based RSUs.

During

the three months ended March 26, 2022, the Compensation Committee

reinstated performance-based RSUs for

equity-based awards to employees for fiscal 2022 and awarded grants in

the form of time-based RSUs,

performance-based RSUs and non-qualified stock options.

RSUs are stock-based awards granted to recipients with specified vesting provisions.

In the case of RSUs, common

stock is generally delivered on or following satisfaction of vesting conditions.

We issue RSUs to employees that

vest (i) solely based on the recipient’s continued service over time, primarily with

four

-year cliff vesting and/or (ii)

based on achieving specified performance measurements and the recipient’s continued service over time, primarily

with

three

-year cliff vesting.

RSUs granted under the 2015 Non-Employee Director Stock Incentive

Plan primarily

are granted with

-month cliff vesting.

For these RSUs, we recognize the cost as compensation expense on

straight-line basis.

With respect to time-based RSUs, we estimate the fair value on the date of grant based on our closing

stock price at

the time of grant.

With respect to performance-based RSUs, the number of shares that ultimately vest and

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 awards under

the Plans and with respect to the performance

goals under the performance-based RSUs granted under our 2020 Stock

Incentive Plan, including adjustment to the

goals for significant events, including, without limitation, acquisitions,

divestitures, new business ventures, certain

capital transactions (including share repurchases), other differences in budgeted average

outstanding shares (other

than those resulting from capital transactions referred to above), restructuring

costs, if any, certain litigation

settlements or payments, if any, changes in accounting principles or in applicable laws or regulations, changes in

income tax rates in certain markets, foreign exchange fluctuations, and

unforeseen events or circumstances

affecting the Company.

Over the performance period, the number of shares of common stock

that will ultimately

vest and be issued and the related compensation expense is adjusted upward

or downward based upon our

estimation of achieving such performance targets.

The ultimate number of shares delivered to recipients

and the

related compensation cost recognized as an expense will be based on our

actual performance metrics as defined

under the Plans.

Stock options are awards that allow the recipient to purchase shares of our

common stock at a fixed price following

vesting of the stock options.

Stock options are granted at an exercise price equal to our closing stock price

on the

date of grant.

Stock options issued beginning in 2021 vest

one-third

per year based on the recipient’s continued

service, subject to the terms and conditions of the 2020 Stock Incentive Plan,

are fully vested

three years

from the

grant date and have a contractual term of

ten years

from the grant date, subject to earlier termination of the term

upon certain events.

Compensation expense for these stock options is recognized

using a graded vesting method.

We estimate the fair value of stock options using the Black-Scholes valuation model.

Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(in millions, except share and per share data)

(unaudited

)

In addition to equity-based awards granted in fiscal 2021 under the Company’s long-term incentive program, the

Compensation Committee granted a Special Pandemic Recognition Award under the 2020 Stock Incentive Plan to

recipients of performance-based RSUs under the 2018 long-term

incentive program.

The payout under the

performance-based restricted stock units granted under the fiscal 2018

long-term incentive program (the “2018

LTIP”) was negatively impacted by the global COVID-19 pandemic.

Given the significance of the impact of the

pandemic on the Company’s

three-year

EPS goal under such equity awards and the contributions made

by the

Company’s employees (including those who received such awards), on March 3, 2021, the Compensation

Committee granted a Special Pandemic Recognition Award to recipients of performance-based restricted stock

units under the 2018 LTIP who were employed by the Company on the grant date of the Special Pandemic

Recognition Award.

These time-based RSU awards vest

% on the first anniversary of the grant date and

% on

the second anniversary of the grant date, based on the recipient’s continued service and subject to the terms

and

conditions of the 2020 Stock Incentive Plan, and are recorded as compensation

expense using a graded vesting

method.

The combination of the

% payout based on actual performance of the 2018 LTIP and the one-time

Special Pandemic Recognition Award granted in 2021 will generate a cumulative payout of

% of each recipient’s

original number of performance-based restricted stock units awarded in 2018

if the recipient satisfies the

two-year

vesting schedule commencing on the grant date.

Our accompanying condensed consolidated statements of income reflect

pre-tax share-based compensation expense

of $

million ($

million after-tax) and $

million ($

million after-tax) for the three months ended March 26,

2022 and March 27, 2021, respectively.

Total unrecognized compensation cost related to unvested awards as of March 26, 2022 was $

134

million, which is

expected to be recognized over a weighted-average period of approximately

2.6

years.

Our accompanying condensed consolidated statements of cash flows present

our stock-based compensation expense

as an adjustment to reconcile net income to net cash provided by operating

activities for all periods presented.

the accompanying consolidated statements of cash flows, there were

benefits associated with tax deductions in

excess of recognized compensation as a cash inflow from financing

activities for the three months ended March 26,

2022 and March 27, 2021, respectively.

The following weighted-average assumptions were used in determining

the most recent fair values of stock options

granted using the Black-Scholes valuation model:

2022

Expected dividend yield

0.0

Expected stock price volatility

27.20

Risk-free interest rate

2.20

Expected life of options (years)

6.00

We have not declared cash dividends on our stock in the past and we do not anticipate declaring cash dividends in

the foreseeable future.

The expected stock price volatility is based on implied volatilities

from traded options on

our stock, historical volatility of our stock, and other factors.

The risk-free interest rate is based on the U.S.

Treasury yield curve in effect at the time of grant in conjunction with considering the expected life of options.

The

six-year expected life of the options was determined using the simplified

method for estimating the expected term

as permitted under SAB Topic 14.

Estimates of fair value are not intended to predict actual future events or

the

value ultimately realized by recipients of stock options, and subsequent

events are not indicative of the

reasonableness of the original estimates of fair value made by us.

Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(in millions, except share and per share data)

(unaudited

)

The following table summarizes stock option activity under the Plans

during the three months ended March 26,

2022:

Stock Options

Weighted

Average

Weighted

Remaining

Average

Contractual

Aggregate

Exercise

Life in

Intrinsic

Price

Years

Value

Outstanding at beginning of period

767,717

63.24

Granted

396,874

86.27

Exercised

(26,233)

62.71

Forfeited

(1,688)

62.71

Outstanding at end of period

1,136,670

71.30

9.3

Options exercisable at end of period

220,065

62.71

Weighted

Average

Remaining

Aggregate

Number of

Exercise

Contractual

Intrinsic

Options

Price

Life (in years)

Value

Vested

or expected to vest

891,140

73.66

9.4

The following tables summarize the activity of our unvested RSUs for

the three months ended March 26, 2022:

Time-Based Restricted Stock Units

Weighted Average

Grant Date Fair

Intrinsic Value

Shares/Units

Value Per Share

Per Share

Outstanding at beginning of period

1,945,862

58.79

Granted

427,978

86.43

Vested

(489,549)

54.57

Forfeited

(7,374)

61.18

Outstanding at end of period

1,876,917

66.30

87.85

Performance-Based Restricted Stock Units

Weighted Average

Grant Date Fair

Intrinsic Value

Shares/Units

Value Per Share

Per Share

Outstanding at beginning of period

674,753

59.63

Granted

460,896

70.93

Vested

(386,612)

59.08

Forfeited

(1,752)

60.56

Outstanding at end of period

747,285

56.77

87.85

Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(in millions, except share and per share data)

(unaudited

)

Note 11 – Redeemable Noncontrolling Interests

Some minority stockholders in certain of our subsidiaries have the right,

at certain times, to require us to acquire

their ownership interest in those entities at fair value.

Accounting Standards Codification Topic 480-10 is

applicable for noncontrolling interests where we are or may be required

to purchase all or a portion of the

outstanding interest in a consolidated subsidiary from the noncontrolling

interest holder under the terms of a put

option contained in contractual agreements.

The components of the change in the redeemable noncontrolling

interests for the three months ended March 26, 2022 and the year ended December

25, 2021 are presented in the

following table:

March 26,

December 25,

2022

2021

Balance, beginning of period

613

328

Decrease in redeemable noncontrolling interests due to acquisitions of

noncontrolling interests in subsidiaries

(3)

(60)

Increase in redeemable noncontrolling interests due to business

acquisitions

189

Net income attributable to redeemable noncontrolling interests

Dividends declared

(5)

(21)

Effect of foreign currency translation gain (loss) attributable to

redeemable noncontrolling interests

(6)

Change in fair value of redeemable securities

160

Balance, end of period

613

Note 12 – Comprehensive Income

Comprehensive income includes certain gains and losses that, under U.S.

GAAP,

are excluded from net income as

such amounts are recorded directly as an adjustment to stockholders’

equity.

The following table summarizes our Accumulated other comprehensive loss, net of

applicable taxes as of:

March 26,

December 25,

2022

2021

Attributable to Redeemable noncontrolling interests:

Foreign currency translation adjustment

(30)

(31)

Attributable to Henry Schein, Inc.:

Foreign currency translation adjustment

(153)

(155)

Unrealized loss from foreign currency hedging activities

(1)

(2)

Pension adjustment loss

(14)

Accumulated other comprehensive loss

(168)

(171)

Total Accumulated

other comprehensive loss

(198)

(202)

Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(in millions, except share and per share data)

(unaudited

)

The following table summarizes the components of comprehensive income, net

of applicable taxes as follows:

Three Months Ended

March 26,

March 27,

2022

2021

Net income

186

175

Foreign currency translation gain (loss)

(38)

Tax effect

Foreign currency translation gain (loss)

(38)

Unrealized gain from foreign currency hedging activities

Tax effect

(1)

Unrealized gain from foreign currency hedging activities

Pension adjustment gain

Tax effect

Pension adjustment gain

Comprehensive income

190

141

Our financial statements are denominated in the U.S. Dollar currency.

Fluctuations in the value of foreign

currencies as compared to the U.S. Dollar may have a significant impact

on our comprehensive income.

The

foreign currency translation loss during the three months ended March

26, 2022 and three months ended March 27,

2021 was primarily impacted by changes in foreign currency exchange rates

of the Euro, British Pound, Brazilian

Real, Australian Dollar and Canadian Dollar.

The following table summarizes our total comprehensive income, net of

applicable taxes, as follows:

Three Months Ended

March 26,

March 27,

2022

2021

Comprehensive income attributable to

Henry Schein, Inc.

184

138

Comprehensive income attributable to

noncontrolling interests

Comprehensive income attributable to

Redeemable noncontrolling interests

Comprehensive income

190

141

Note 13 – Plans of Restructuring

On November 20, 2019, we committed to a contemplated restructuring

initiative intended to mitigate stranded costs

associated with the spin-off of our animal health business and to rationalize operations

and to provide expense

efficiencies.

These restructuring activities were completed in 2021.

During the three months ended March 27, 2021, we recorded restructuring

costs of $

million.

As of March 26,

2022 and December 25, 2021, the remaining accrued balance for restructuring

costs was $

million and $

million,

respectively

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HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(in millions, except share and per share data)

(unaudited

)

Note 14

–

Earnings Per Share

Basic earnings per share is computed by dividing net income attributable

to Henry Schein, Inc. by the weighted-

average number of common shares outstanding for the period.

Our diluted earnings per share is computed similarly

to basic earnings per share, except that it reflects the effect of common shares issuable

for presently unvested

restricted stock and RSUs and upon exercise of stock options using

the treasury stock method in periods in which

they have a dilutive effect.

A reconciliation of shares used in calculating earnings per basic and

diluted share follows:

Three Months Ended

March 26,

March 27,

2022

2021

Basic

137,296,581

142,298,387

Effect of dilutive securities:

Stock options, restricted stock and restricted stock units

1,940,891

1,099,337

Diluted

139,237,472

143,397,724

The effect of weighted average assumed exercise of stock options outstanding totaling

76,597

and

216,482

as of

March 26, 2022 and March 27, 2021, respectively, were excluded from the calculation of diluted weighted average

common shares outstanding because the effect would have been antidilutive.

The effect of weighted average non-vested restricted stock units outstanding totaling

70,923

and

6,315

as of March

26, 2022 and March 27, 2021,

respectively, were excluded from the calculation of diluted weighted average

common shares outstanding because the effect would have been antidilutive.

Note 15 – Supplemental Cash Flow Information

Cash paid for interest and income taxes was:

Three Months Ended

March 26,

March 27,

2022

2021

Interest

Income taxes

During the three months ended March 26, 2022 and March 27, 2021,

we had a $

million and a $

million of non-

cash net unrealized gains related to foreign currency hedging activities,

respectively.

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HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(in millions, except share and per share data)

(unaudited

)

Note 16 – Related Party Transactions

In connection with the formation of Henry Schein One, LLC, our joint venture

with Internet Brands, which was

formed on July 1, 2018, we entered into a

ten-year

royalty agreement with Internet Brands whereby we will pay

Internet Brands approximately $

million annually for the use of their intellectual property.

During the three

months ended March 26, 2022 and March 27, 2021, we recorded $

million and $

million, respectively, in

connection with costs related to this royalty agreement.

As of March 26, 2022 and December 25, 2021, Henry

Schein One, LLC had a net receivable balance due from Internet Brands of

million and $

million, respectively,

comprised of amounts related to results of operations and the royalty agreement.

During our normal course of business, we have interests in entities that we

account for under the equity accounting

method.

During the three months ended March 26, 2022 and March 27,

2021, we recorded net sales of $

million

and $

million, respectively, to such entities.

During the three months ended March 26, 2022 and March 27,

2021,

we purchased $

million and $

million, respectively from such entities.

At March 26, 2022 and December 25,

2021, we had in aggregate $

million and $

million, due from our equity affiliates, and $

million and $

million due to our equity affiliates, respectively.

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ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Cautionary Note Regarding Forward-Looking Statements

In accordance with the “Safe Harbor” provisions of the Private Securities

Litigation Reform Act of 1995, we

provide the following cautionary remarks regarding important factors

that, among others, could cause future results

to differ materially from the forward-looking statements, expectations and assumptions

expressed or implied

herein.

All forward-looking statements made by us are subject to

risks and uncertainties and are not guarantees of

future performance.

These forward-looking statements involve known and unknown

risks, uncertainties and other

factors that may cause our actual results, performance and achievements

or industry results to be materially

different from any future results, performance or achievements expressed or implied by such

forward-looking

statements.

These statements are generally identified by the use of such

terms as “may,” “could,” “expect,”

“intend,” “believe,” “plan,” “estimate,” “forecast,” “project,” “anticipate,”

“to be,” “to make” or other comparable

terms.

Factors that could cause or contribute to such differences include, but are not limited

to, those discussed in

the documents we file with the Securities and Exchange Commission

(SEC), including our Annual Report on Form

10-K. Forward looking statements include the overall impact of the Novel

Coronavirus Disease 2019 (COVID-19)

on the Company, its results of operations, liquidity and financial condition (including any estimates of the impact

on these items), the rate and consistency with which dental and other practices

resume or maintain normal

operations in the United States and internationally, expectations regarding personal protective equipment (“PPE”)

and COVID-19 related product sales and inventory levels, whether additional

resurgences or variants of the virus

will adversely impact the resumption of normal operations, whether vaccine

mandates will adversely impact the

Company (by disrupting our workforce and/or business), whether supply chain

disruptions will adversely impact

our business, the impact of restructuring programs as well as of any

future acquisitions, and more generally current

expectations regarding performance in current and future periods.

Forward looking statements also include the (i)

ability of the Company to have continued access to a variety of COVID-19

test types, expectations regarding

COVID-19 test sales, demand and inventory levels, as well

as the efficacy or relative efficacy of the test results

given that the test efficacy has not been, or will not have been, independently

verified under normal FDA

procedures and (ii) potential for the Company to distribute the COVID-19

vaccines and ancillary supplies.

Risk factors and uncertainties that could cause actual results to differ materially from current

and historical results

include, but are not limited to: risks associated with COVID-19

and any variants thereof, as well as other disease

outbreaks, epidemics, pandemics, or similar wide-spread public health concerns

and other natural disasters; our

dependence on third parties for the manufacture and supply of our products;

our ability to develop or acquire and

maintain and protect new products (particularly technology products) and

technologies that achieve market

acceptance with acceptable margins; transitional challenges associated with acquisitions,

dispositions and joint

ventures, including the failure to achieve anticipated synergies/benefits; financial

and tax risks associated with

acquisitions, dispositions and joint ventures; certain provisions in our governing

documents that may discourage

third-party acquisitions of us; effects of a highly competitive (including, without

limitation, competition from third-

party online commerce sites) and consolidating market; the repeal or

judicial 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 macro-economic and political conditions,

including international trade agreements,

potential trade barriers and terrorism; failure to comply with existing and

future regulatory requirements; risks

associated with the EU Medical Device Regulation; failure to comply with

laws and regulations relating to health

care fraud or other laws and regulations; failure to comply with laws

and regulations relating to the collection,

storage and processing of sensitive personal information or standards in electronic

health records or transmissions;

changes in tax legislation; risks related to product liability, intellectual property and other claims; litigation

risks; new or unanticipated litigation developments and the status of

litigation matters; risks associated with

customs policies or legislative import restrictions; cyberattacks or other

privacy or data security breaches; risks

associated with our global operations; our dependence on our senior management,

employee hiring and retention,

and our relationships with customers, suppliers and manufacturers;

and disruptions in financial markets.

The order

in which these factors appear should not be construed to indicate their

relative importance or priority.

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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.

Where You

Can Find Important Information

We may disclose important information through one or more of the following channels: SEC filings, public

conference calls and webcasts, press releases, the investor relations

page of our website (www.henryschein.com)

and the social media channels identified on the Newsroom page of our website.

Recent Developments

COVID-19 Pandemic

The COVID-19 pandemic negatively impacted the global economy, disrupted global supply chains and created

significant volatility and disruption of global financial markets in

2020 and 2021.

The impact of COVID-19 had a

material adverse effect on our business, results of operations and cash flows in the

second quarter of 2020.

In the

latter half of the second quarter of 2020, dental and medical practices began

to re-open worldwide, and continued to

do so during the second half of 2020.

During the year ended December 25, 2021, patient traffic levels returned to

levels approaching pre-pandemic levels.

Demand for dental products and certain medical products throughout 2021

was driven by sales of PPE, COVID-19 test kits and other COVID-19

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Henry Schein (HSIC) 10-Q2022 Q1 Quarterly report

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