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HENRY SCHEIN INC - Quarter Report: 2021 September (Form 10-Q)

 

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 September 25, 2021

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ____________ to ____________

Commission File Number: 0-27078

 

HENRY SCHEIN, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

11-3136595

(State or other jurisdiction of

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

incorporation or organization)

 

 

135 Duryea Road

Melville, New York

(Address of principal executive offices)

11747

(Zip Code)

 

(631) 843-5500

(Registrant’s telephone number, including area code)

 

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $.01 per share

HSIC

The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes

No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

Yes

No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

No

As of October 25, 2021, there were 138,674,412 shares of the registrant’s common stock outstanding.

 


 

HENRY SCHEIN, INC.

INDEX

 

 

 

 

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

Page

ITEM 1.

Consolidated Financial Statements:

 

 

 

 

 

 

 

 

 

 

Balance Sheets as of September 25, 2021 and December 26, 2020

3

 

 

 

 

 

 

 

 

 

Statements of Income for the three and nine months ended

 

 

 

 

September 25, 2021 and September 26, 2020

4

 

 

 

 

 

 

 

 

 

Statements of Comprehensive Income for the three and nine months ended

 

 

 

 

September 25, 2021 and September 26, 2020

5

 

 

 

 

 

 

 

 

 

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

 

 

 

 

September 25, 2021 and September 26, 2020

6

 

 

 

 

 

 

 

 

 

Statement of Changes in Stockholders' Equity for the nine months ended

 

 

 

 

September 25, 2021 and September 26, 2020

7

 

 

 

 

 

 

 

 

 

Statements of Cash Flows for the nine months ended

 

 

 

 

September 25, 2021 and September 26, 2020

8

 

 

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements

9

 

 

 

Note 1 – Basis of Presentation

9

 

 

 

Note 2 – Critical Accounting Policies, Accounting Pronouncements Adopted

 

 

 

 

and Recently Issued Accounting Standards

10

 

 

 

Note 3 – Revenue from Contracts with Customers

11

 

 

 

Note 4 – Segment Data

12

 

 

 

Note 5 – Debt

13

 

 

 

Note 6 – Leases

16

 

 

 

Note 7 – Redeemable Noncontrolling Interests

18

 

 

 

Note 8 – Comprehensive Income

18

 

 

 

Note 9 – Fair Value Measurements

20

 

 

 

Note 10 – Business Acquisitions

22

 

 

 

Note 11 – Plans of Restructuring

23

 

 

 

Note 12 – Earnings Per Share

24

 

 

 

Note 13 – Income Taxes

25

 

 

 

Note 14 – Derivatives and Hedging Activities

26

 

 

 

Note 15 – Stock-Based Compensation

27

 

 

 

Note 16 – Supplemental Cash Flow Information

29

 

 

 

Note 17 – Legal Proceedings

30

 

 

 

Note 18 – Related Party Transactions

32

 

 

 

 

 

 

 

ITEM 2.

Management's Discussion and Analysis of

 

 

 

 

Financial Condition and Results of Operations

33

 

 

 

 

 

 

 

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

53

 

 

 

 

 

 

 

ITEM 4.

Controls and Procedures

54

 

 

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

ITEM 1.

Legal Proceedings

55

 

 

 

ITEM 1A.

Risk Factors

55

 

 

 

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

55

 

 

 

 

 

 

ITEM 6.

Exhibits

56

 

 

 

 

Signature

57

 

 


Table of Contents

 

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

HENRY SCHEIN, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

 

 

 

 

 

September 25,

 

December 26,

 

 

 

 

 

2021

 

2020

 

 

 

 

 

(unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

119,133

 

$

421,185

 

Accounts receivable, net of reserves of $73,095 and $88,030

 

 

1,551,946

 

 

1,424,787

 

Inventories, net

 

 

1,784,050

 

 

1,512,499

 

Prepaid expenses and other

 

 

457,232

 

 

432,944

 

 

 

Total current assets

 

 

3,912,361

 

 

3,791,415

Property and equipment, net

 

 

355,675

 

 

342,004

Operating lease right-of-use assets

 

 

329,886

 

 

288,847

Goodwill

 

 

2,779,234

 

 

2,504,392

Other intangibles, net

 

 

645,832

 

 

479,429

Investments and other

 

 

397,764

 

 

366,445

 

 

 

Total assets

 

$

8,420,752

 

$

7,772,532

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

1,057,127

 

$

1,005,655

 

Bank credit lines

 

 

59,394

 

 

73,366

 

Current maturities of long-term debt

 

 

9,638

 

 

109,836

 

Operating lease liabilities

 

 

77,383

 

 

64,716

 

Accrued expenses:

 

 

 

 

 

 

 

 

Payroll and related

 

 

345,438

 

 

295,329

 

 

Taxes

 

 

157,446

 

 

138,671

 

 

Other

 

 

594,979

 

 

595,529

 

 

 

Total current liabilities

 

 

2,301,405

 

 

2,283,102

Long-term debt

 

 

705,540

 

 

515,773

Deferred income taxes

 

 

37,248

 

 

30,065

Operating lease liabilities

 

 

270,152

 

 

238,727

Other liabilities

 

 

388,211

 

 

392,781

 

 

 

Total liabilities

 

 

3,702,556

 

 

3,460,448

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

 

612,582

 

 

327,699

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

Preferred stock, $0.01 par value, 1,000,000 shares authorized,

 

 

 

 

 

 

 

 

none outstanding

 

 

-

 

 

-

 

Common stock, $0.01 par value, 480,000,000 shares authorized,

 

 

 

 

 

 

 

 

139,129,543 outstanding on September 25, 2021 and

 

 

 

 

 

 

 

 

142,462,571 outstanding on December 26, 2020

 

 

1,391

 

 

1,425

 

Additional paid-in capital

 

 

-

 

 

-

 

Retained earnings

 

 

3,594,238

 

 

3,454,831

 

Accumulated other comprehensive loss

 

 

(137,640)

 

 

(108,084)

 

 

Total Henry Schein, Inc. stockholders' equity

 

 

3,457,989

 

 

3,348,172

 

Noncontrolling interests

 

 

647,625

 

 

636,213

 

 

 

Total stockholders' equity

 

 

4,105,614

 

 

3,984,385

 

 

Total liabilities, redeemable noncontrolling interests and stockholders' equity

 

$

8,420,752

 

$

7,772,532

See accompanying notes.

 

3


Table of Contents

 

HENRY SCHEIN, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

(unaudited)

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

 

September 25,

 

September 26,

 

September 25,

 

September 26,

 

 

 

 

 

2021

 

2020

 

2021

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

3,178,315

 

$

2,840,146

 

$

9,070,499

 

$

6,953,416

Cost of sales

 

 

2,266,170

 

 

2,085,878

 

 

6,377,752

 

 

4,998,868

 

 

Gross profit

 

 

912,145

 

 

754,268

 

 

2,692,747

 

 

1,954,548

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

701,499

 

 

559,605

 

 

2,038,292

 

 

1,572,732

 

Restructuring costs (credits)

 

 

(175)

 

 

6,992

 

 

3,360

 

 

27,713

 

 

Operating income

 

 

210,821

 

 

187,671

 

 

651,095

 

 

354,103

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

1,409

 

 

2,294

 

 

4,749

 

 

7,481

 

Interest expense

 

 

(6,550)

 

 

(11,111)

 

 

(19,411)

 

 

(29,409)

 

Other, net

 

 

403

 

 

(1,699)

 

 

1,066

 

 

(2,210)

 

 

Income from continuing operations before taxes,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

equity in earnings of affiliates and noncontrolling interests

 

 

206,083

 

 

177,155

 

 

637,499

 

 

329,965

Income taxes

 

 

(49,276)

 

 

(29,005)

 

 

(153,988)

 

 

(65,965)

Equity in earnings of affiliates

 

 

5,349

 

 

3,663

 

 

17,550

 

 

7,808

Gain on sale of equity investment

 

 

7,318

 

 

-

 

 

7,318

 

 

-

Net income from continuing operations

 

 

169,474

 

 

151,813

 

 

508,379

 

 

271,808

Income (loss) from discontinued operations, net of tax

 

 

-

 

 

(29)

 

 

-

 

 

274

Net income

 

 

169,474

 

 

151,784

 

 

508,379

 

 

272,082

 

Less: Net income attributable to noncontrolling interests

 

 

(7,188)

 

 

(10,087)

 

 

(24,380)

 

 

(10,921)

Net income attributable to Henry Schein, Inc.

 

$

162,286

 

$

141,697

 

$

483,999

 

$

261,161

Amounts attributable to Henry Schein Inc.:

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

162,286

 

$

141,726

 

$

483,999

 

$

260,887

Discontinued operations

 

 

-

 

 

(29)

 

 

-

 

 

274

Net income attributable to Henry Schein, Inc.

 

$

162,286

 

$

141,697

 

$

483,999

 

$

261,161

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share from continuing operations attributable to Henry Schein, Inc.:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.16

 

$

1.00

 

$

3.44

 

$

1.83

 

Diluted

 

$

1.15

 

$

0.99

 

$

3.40

 

$

1.82

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share from discontinued operations attributable to Henry Schein, Inc.:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

-

 

$

-

 

$

-

 

$

-

 

Diluted

 

$

-

 

$

-

 

$

-

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share attributable to Henry Schein, Inc.:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.16

 

$

1.00

 

$

3.44

 

$

1.83

 

Diluted

 

$

1.15

 

$

0.99

 

$

3.40

 

$

1.82

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

139,377

 

 

142,362

 

 

140,661

 

 

142,553

 

Diluted

 

 

141,079

 

 

143,091

 

 

142,179

 

 

143,308

See accompanying notes.

 

4


Table of Contents

 

HENRY SCHEIN, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

 

September 25,

 

September 26,

 

September 25,

 

September 26,

 

 

 

 

 

2021

 

2020

 

2021

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

169,474

 

$

151,784

 

$

508,379

 

$

272,082

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation gain (loss)

 

 

(39,762)

 

 

37,588

 

 

(40,105)

 

 

(17,316)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) from foreign currency hedging

 

 

 

 

 

 

 

 

 

 

 

 

 

 

activities

 

 

3,536

 

 

(7,697)

 

 

5,146

 

 

2,457

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized investment gain (loss)

 

 

2

 

 

2

 

 

(1)

 

 

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension adjustment gain (loss)

 

 

624

 

 

(338)

 

 

1,466

 

 

161

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax

 

 

(35,600)

 

 

29,555

 

 

(33,494)

 

 

(14,703)

Comprehensive income

 

 

133,874

 

 

181,339

 

 

474,885

 

 

257,379

 

Comprehensive income attributable to noncontrolling

 

 

 

 

 

 

 

 

 

 

 

 

 

interests:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

(7,188)

 

 

(10,087)

 

 

(24,380)

 

 

(10,921)

 

 

Foreign currency translation (gain) loss

 

 

4,739

 

 

(1,636)

 

 

3,938

 

 

10,744

 

 

 

Comprehensive income attributable to noncontrolling

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

interests

 

 

(2,449)

 

 

(11,723)

 

 

(20,442)

 

 

(177)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to Henry Schein, Inc.

 

$

131,425

 

$

169,616

 

$

454,443

 

$

257,202

See accompanying notes.

 

5


Table of Contents

 

HENRY SCHEIN, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

(in thousands, except share and per share data)

(unaudited)

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Common Stock

Additional

 

 

Other

 

 

Total

 

 

$.01 Par Value

Paid-in

Retained

Comprehensive

Noncontrolling

Stockholders'

 

 

Shares

 

Amount

Capital

Earnings

Income / (Loss)

Interests

Equity

Balance, June 26, 2021

139,780,841

$

1,398

$

-

$

3,465,647

$

(106,779)

$

646,415

$

4,006,681

Net income (excluding $5,737 attributable to Redeemable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests from continuing operations)

-

 

-

 

-

 

162,286

 

-

 

1,451

 

163,737

Foreign currency translation loss (excluding loss of $4,668

 

 

 

 

 

 

 

 

 

 

 

 

 

 

attributable to Redeemable noncontrolling interests)

-

 

-

 

-

 

-

 

(35,023)

 

(71)

 

(35,094)

Unrealized gain from foreign currency hedging activities,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

net of tax of $1,172

-

 

-

 

-

 

-

 

3,536

 

-

 

3,536

Unrealized investment gain, net of tax of $1

-

 

-

 

-

 

-

 

2

 

-

 

2

Pension adjustment gain, net of tax of $269

-

 

-

 

-

 

-

 

624

 

-

 

624

Dividends paid

-

 

-

 

-

 

-

 

-

 

(170)

 

(170)

Change in fair value of redeemable securities

-

 

-

 

(10,884)

 

-

 

-

 

-

 

(10,884)

Repurchase and retirement of common stock

(651,289)

 

(7)

 

(6,500)

 

(43,493)

 

-

 

-

 

(50,000)

Stock-based compensation expense

11

 

-

 

27,546

 

-

 

-

 

-

 

27,546

Shares withheld for payroll taxes

(20)

 

-

 

(1)

 

-

 

-

 

-

 

(1)

Settlement of stock-based compensation awards

-

 

-

 

(363)

 

-

 

-

 

-

 

(363)

Transfer of charges in excess of capital

-

 

-

 

(9,798)

 

9,798

 

-

 

-

 

-

Balance, September 25, 2021

139,129,543

$

1,391

$

-

$

3,594,238

$

(137,640)

$

647,625

$

4,105,614

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Common Stock

Additional

 

 

Other

 

 

Total

 

 

$.01 Par Value

Paid-in

Retained

Comprehensive

Noncontrolling

Stockholders'

 

 

Shares

 

Amount

Capital

Earnings

Income / (Loss)

Interests

Equity

Balance, June 27, 2020

142,438,127

$

1,424

$

16,475

$

3,172,439

$

(199,251)

$

630,458

$

3,621,545

Net income (excluding $6,092 attributable to Redeemable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests from continuing operations)

-

 

-

 

-

 

141,697

 

-

 

3,995

 

145,692

Foreign currency translation gain (excluding gain of $1,277

 

 

 

 

 

 

 

 

 

 

 

 

 

 

attributable to Redeemable noncontrolling interests)

-

 

-

 

-

 

-

 

35,952

 

359

 

36,311

Unrealized loss from foreign currency hedging activities,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

net of tax benefit of $2,793

-

 

-

 

-

 

-

 

(7,697)

 

-

 

(7,697)

Unrealized investment gain, net of tax of $0

-

 

-

 

-

 

-

 

2

 

-

 

2

Pension adjustment loss, net of tax benefit of $133

-

 

-

 

-

 

-

 

(338)

 

-

 

(338)

Dividends paid

-

 

-

 

-

 

-

 

-

 

(309)

 

(309)

Change in fair value of redeemable securities

-

 

-

 

(10,724)

 

-

 

-

 

-

 

(10,724)

Initial noncontrolling interests and adjustments related to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

business acquisitions

-

 

-

 

-

 

-

 

-

 

2,491

 

2,491

Stock-based compensation expense

21,113

 

-

 

5,710

 

-

 

-

 

-

 

5,710

Shares withheld for payroll taxes

(2,922)

 

1

 

(194)

 

-

 

-

 

-

 

(193)

Settlement of stock-based compensation awards

-

 

-

 

(223)

 

-

 

-

 

-

 

(223)

Balance, September 26, 2020

142,456,318

$

1,425

$

11,044

$

3,314,136

$

(171,332)

$

636,994

$

3,792,267

See accompanying notes.

 

6


Table of Contents

 

HENRY SCHEIN, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

(in thousands, except share and per share data)

(unaudited)

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Common Stock

Additional

 

 

Other

 

 

Total

 

 

$.01 Par Value

Paid-in

Retained

Comprehensive

Noncontrolling

Stockholders'

 

 

Shares

 

Amount

Capital

Earnings

Income / (Loss)

Interests

Equity

Balance, December 26, 2020

142,462,571

$

1,425

$

-

$

3,454,831

$

(108,084)

$

636,213

$

3,984,385

Net income (excluding $19,770 attributable to Redeemable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests from continuing operations)

-

 

-

 

-

 

483,999

 

-

 

4,610

 

488,609

Foreign currency translation gain (loss) (excluding loss of $4,098

 

 

 

 

 

 

 

 

 

 

 

 

 

 

attributable to Redeemable noncontrolling interests)

-

 

-

 

-

 

-

 

(36,167)

 

160

 

(36,007)

Unrealized gain from foreign currency hedging activities,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

net of tax of $1,819

-

 

-

 

-

 

-

 

5,146

 

-

 

5,146

Unrealized investment loss, net of tax benefit of $0

-

 

-

 

-

 

-

 

(1)

 

-

 

(1)

Pension adjustment gain, net of tax of $450

-

 

-

 

-

 

-

 

1,466

 

-

 

1,466

Dividends paid

-

 

-

 

-

 

-

 

-

 

(324)

 

(324)

Change in fair value of redeemable securities

-

 

-

 

(143,592)

 

-

 

-

 

-

 

(143,592)

Initial noncontrolling interests and adjustments related to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

business acquisitions

-

 

-

 

-

 

-

 

-

 

6,966

 

6,966

Repurchase and retirement of common stock

(3,518,846)

 

(35)

 

(33,742)

 

(217,434)

 

-

 

-

 

(251,211)

Stock-based compensation expense

299,572

 

3

 

57,697

 

-

 

-

 

-

 

57,700

Shares withheld for payroll taxes

(113,754)

 

(2)

 

(7,546)

 

-

 

-

 

-

 

(7,548)

Settlement of stock-based compensation awards

-

 

-

 

25

 

-

 

-

 

-

 

25

Transfer of charges in excess of capital

-

 

-

 

127,158

 

(127,158)

 

-

 

-

 

-

Balance, September 25, 2021

139,129,543

$

1,391

$

-

$

3,594,238

$

(137,640)

$

647,625

$

4,105,614

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Common Stock

Additional

 

 

Other

 

 

Total

 

 

$.01 Par Value

Paid-in

Retained

Comprehensive

Noncontrolling

Stockholders'

 

 

Shares

 

Amount

Capital

Earnings

Income / (Loss)

Interests

Equity

Balance, December 28, 2019

143,353,459

$

1,434

$

47,768

$

3,116,215

$

(167,373)

$

632,093

$

3,630,137

Cumulative impact of adopting new accounting standards

-

 

-

 

-

 

(412)

 

-

 

-

 

(412)

Net income (excluding $7,253 attributable to Redeemable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests from continuing operations)

-

 

-

 

-

 

261,161

 

-

 

3,668

 

264,829

Foreign currency translation gain (loss) (excluding loss of $10,999

 

 

 

 

 

 

 

 

 

 

 

 

 

 

attributable to Redeemable noncontrolling interests)

-

 

-

 

-

 

-

 

(6,572)

 

255

 

(6,317)

Unrealized gain from foreign currency hedging activities,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

net of tax of $553

-

 

-

 

-

 

-

 

2,457

 

-

 

2,457

Unrealized investment loss, net of tax benefit of $1

-

 

-

 

-

 

-

 

(5)

 

-

 

(5)

Pension adjustment gain, net of tax of $66

-

 

-

 

-

 

-

 

161

 

-

 

161

Dividends paid

-

 

-

 

-

 

-

 

-

 

(816)

 

(816)

Purchase of noncontrolling interests

-

 

-

 

(1,597)

 

-

 

-

 

(701)

 

(2,298)

Change in fair value of redeemable securities

-

 

-

 

(5,141)

 

-

 

-

 

-

 

(5,141)

Initial noncontrolling interests and adjustments related to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

business acquisitions

-

 

-

 

-

 

-

 

-

 

2,495

 

2,495

Repurchase and retirement of common stock

(1,200,000)

 

(12)

 

(10,949)

 

(62,828)

 

-

 

-

 

(73,789)

Stock-based compensation expense (credit)

535,556

 

5

 

(6,653)

 

-

 

-

 

-

 

(6,648)

Shares withheld for payroll taxes

(232,697)

 

(2)

 

(14,197)

 

-

 

-

 

-

 

(14,199)

Settlement of stock-based compensation awards

-

 

-

 

164

 

-

 

-

 

-

 

164

Separation of Animal Health business

-

 

-

 

1,649

 

-

 

-

 

-

 

1,649

Balance, September 26, 2020

142,456,318

$

1,425

$

11,044

$

3,314,136

$

(171,332)

$

636,994

$

3,792,267

See accompanying notes.

 

7


Table of Contents

 

HENRY SCHEIN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

September 25,

 

September 26,

 

 

 

 

 

 

2021

 

2020

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income

 

$

508,379

 

$

272,082

 

Income from discontinued operations

 

 

-

 

 

274

 

Income from continuing operations

 

 

508,379

 

 

271,808

 

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

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

150,833

 

 

138,515

 

 

 

Impairment charge on intangible assets

 

 

-

 

 

2,149

 

 

 

Gain on sale of equity investment

 

 

(9,757)

 

 

-

 

 

 

Stock-based compensation expense (credit)

 

 

57,700

 

 

(6,648)

 

 

 

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

 

 

(8,795)

 

 

34,590

 

 

 

Benefit from deferred income taxes

 

 

(725)

 

 

(48,193)

 

 

 

Equity in earnings of affiliates

 

 

(17,550)

 

 

(7,808)

 

 

 

Distributions from equity affiliates

 

 

15,035

 

 

10,053

 

 

 

Changes in unrecognized tax benefits

 

 

(6,479)

 

 

(18,365)

 

 

 

Other

 

 

(48)

 

 

4,794

 

 

 

Changes in operating assets and liabilities, net of acquisitions:

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(83,101)

 

 

(199,858)

 

 

 

 

Inventories

 

 

(207,921)

 

 

(25,830)

 

 

 

 

Other current assets

 

 

(41,651)

 

 

(51,746)

 

 

 

 

Accounts payable and accrued expenses

 

 

77,021

 

 

144,953

Net cash provided by operating activities from continuing operations

 

 

432,941

 

 

248,414

Net cash provided by operating activities from discontinued operations

 

 

-

 

 

648

Net cash provided by operating activities

 

 

432,941

 

 

249,062

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of fixed assets

 

 

(48,706)

 

 

(37,799)

 

Payments related to equity investments and business

 

 

 

 

 

 

 

 

acquisitions, net of cash acquired

 

 

(415,365)

 

 

(52,208)

 

Proceeds from sale of equity investments

 

 

9,757

 

 

12,000

 

Payments for loan to affiliate

 

 

(5,980)

 

 

(1,451)

 

Other

 

 

(18,707)

 

 

(14,498)

Net cash used in investing activities from continuing operations

 

 

(479,001)

 

 

(93,956)

Net cash used in investing activities from discontinued operations

 

 

-

 

 

-

Net cash used in investing activities

 

 

(479,001)

 

 

(93,956)

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Net change in bank borrowings

 

 

(13,128)

 

 

484,139

 

Proceeds from issuance of long-term debt

 

 

200,000

 

 

501,421

 

Principal payments for long-term debt

 

 

(121,835)

 

 

(610,457)

 

Debt issuance costs

 

 

(2,013)

 

 

(3,683)

 

Debt extinguishment costs

 

 

-

 

 

(401)

 

Payments for repurchases and retirement of common stock

 

 

(251,211)

 

 

(73,789)

 

Payments for taxes related to shares withheld for employee taxes

 

 

(7,372)

 

 

(14,007)

 

Distributions to noncontrolling shareholders

 

 

(8,622)

 

 

(3,995)

 

Acquisitions of noncontrolling interests in subsidiaries

 

 

(50,292)

 

 

(14,934)

 

Proceeds from Henry Schein Animal Health Business

 

 

-

 

 

139

Net cash provided by (used in) financing activities from continuing operations

 

 

(254,473)

 

 

264,433

Net cash used in financing activities from discontinued operations

 

 

-

 

 

(648)

Net cash provided by (used in) financing activities

 

 

(254,473)

 

 

263,785

Effect of exchange rate changes on cash and cash equivalents from continuing operations

 

 

(1,519)

 

 

8,507

Effect of exchange rate changes on cash and cash equivalents from discontinued operations

 

 

-

 

 

-

Net change in cash and cash equivalents from continuing operations

 

 

(302,052)

 

 

427,398

Net change in cash and cash equivalents from discontinued operations

 

 

-

 

 

-

Cash and cash equivalents, beginning of period

 

 

421,185

 

 

106,097

Cash and cash equivalents, end of period

 

$

119,133

 

$

533,495

 

See accompanying notes.

 

8


Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

 

 

Note 1Basis of Presentation

 

Our consolidated financial statements include our accounts, as well as those of our wholly-owned and majority-owned subsidiaries. Certain prior period amounts have been reclassified to conform to the current period presentation.

 

Our accompanying unaudited 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.

 

We consolidate the results of operations and financial position of a trade accounts receivable securitization which we consider a Variable Interest Entity (“VIE”) because we are the primary beneficiary, and we have the power to direct activities that most significantly affect the economic performance and have the obligation to absorb the majority of the losses or benefits. For this VIE, the trade accounts receivable transferred to the VIE are pledged as collateral to the related debt. The creditors have recourse to us for losses on these trade accounts receivable. At September 25, 2021 and December 26, 2020, there were no trade accounts receivable that were restricted to settle obligations of this VIE, nor were there liabilities of the VIE where the creditors have recourse to us.

 

The 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. These unaudited interim 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 26, 2020 and with the information contained in our other publicly-available filings with the SEC.

 

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 nine months ended September 25, 2021 are not necessarily indicative of the results to be expected for any other interim period or for the year ending December 25, 2021.

 

In March 2020, the World Health Organization declared the Novel Coronavirus Disease 2019 (“COVID-19”) a 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 response, many countries implemented business closures and restrictions, stay-at-home and social distancing ordinances and similar measures to combat the pandemic, which significantly impacted global business and dramatically reduced demand for dental products and certain medical products in the second quarter of 2020. Demand increased in the second half of 2020 and has continued into the third quarter of 2021 resulting in growth over the prior year driven by sales of personal protective equipment (“PPE”) and COVID-19 related products.

9


Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

 

Our 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; vendor 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. In addition, the impact of COVID-19 had a material adverse effect on our business, results of operations and cash flows, primarily 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 first nine months of 2021, patient traffic levels returned to levels approaching pre-pandemic levels. There is an ongoing risk that the COVID-19 pandemic may again have a material adverse effect on our business, results of operations and cash flows and may result in a material adverse effect on our financial condition and liquidity. However, the extent of the potential impact cannot be reasonably estimated at this time.

 

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 nine months ended September 25, 2021, as compared to the critical accounting policies described in Item 8 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 26, 2020, except as follows:

 

Accounting Pronouncements Adopted

 

On December 27, 2020 we adopted Accounting Standards Update (“ASU”) No. 2019-12, “Income Taxes” (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify U.S. GAAP for other areas of Topic 740 by clarifying and amending existing guidance. Our adoption of ASU 2019-12 did not have a material impact on our consolidated financial statements.

 

Recently Issued Accounting Standards

 

In August 2020, the Financial Accounting Standards Board issued ASU No. 2020-06, “Debt—Debt with Conversion and Other Options” (Subtopic 470-20) and “Derivatives and Hedging— in Entity’s Own Equity” (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for convertible instruments. In addition to eliminating certain accounting models, this ASU includes improvements to the disclosures for convertible instruments and earnings-per-share (EPS) guidance and amends the guidance for the derivatives scope exception for contracts in an entity’s own equity. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021. We do not expect that the requirements of this ASU will have a material impact on our consolidated financial statements.

10


Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

 

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 26, 2020.

 

Disaggregation of Revenue

 

The following table disaggregates our revenue by segment and geography:

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

September 25, 2021

 

September 25, 2021

 

 

 

 

North America

 

International

 

Global

 

North America

 

International

 

Global

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Health care distribution

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dental

$

1,114,631

 

$

708,263

 

$

1,822,894

 

$

3,287,021

 

$

2,235,145

 

$

5,522,166

 

Medical

 

1,163,799

 

 

23,013

 

 

1,186,812

 

 

3,006,699

 

 

77,978

 

 

3,084,677

 

 

Total health care distribution

 

2,278,430

 

 

731,276

 

 

3,009,706

 

 

6,293,720

 

 

2,313,123

 

 

8,606,843

Technology and value-added services

 

147,644

 

 

20,965

 

 

168,609

 

 

399,478

 

 

64,178

 

 

463,656

 

 

Total revenues

$

2,426,074

 

$

752,241

 

$

3,178,315

 

$

6,693,198

 

$

2,377,301

 

$

9,070,499

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

September 26, 2020

 

September 26, 2020

 

 

 

 

North America

 

International

 

Global

 

North America

 

International

 

Global

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Health care distribution

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dental

$

1,008,836

 

$

641,017

 

$

1,649,853

 

$

2,413,154

 

$

1,653,067

 

$

4,066,221

 

Medical

 

1,002,741

 

 

24,405

 

 

1,027,146

 

 

2,377,357

 

 

68,287

 

 

2,445,644

 

 

Total health care distribution

 

2,011,577

 

 

665,422

 

 

2,676,999

 

 

4,790,511

 

 

1,721,354

 

 

6,511,865

Technology and value-added services

 

120,949

 

 

17,406

 

 

138,355

 

 

327,374

 

 

48,173

 

 

375,547

Total excluding Corporate TSA revenues (1)

 

2,132,526

 

 

682,828

 

 

2,815,354

 

 

5,117,885

 

 

1,769,527

 

 

6,887,412

Corporate TSA revenues (1)

 

-

 

 

24,792

 

 

24,792

 

 

-

 

 

66,004

 

 

66,004

 

 

Total revenues

$

2,132,526

 

$

707,620

 

$

2,840,146

 

$

5,117,885

 

$

1,835,531

 

$

6,953,416

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Corporate TSA revenues represents sales of certain animal health products to Covetrus under the transition services agreement entered into in connection with the Animal Health Spin-off, which ended in December 2020. See Note-18 Related Party Transactions for further information.

At December 26, 2020, the current portion of contract liabilities of $71.5 million was reported in Accrued expenses: Other, and $8.2 million related to non-current contract liabilities was reported in Other liabilities. During the nine months ended September 25, 2021, we recognized in revenue $54.1 million of the amounts that were previously deferred at December 26, 2020. At September 25, 2021, the current and non-current portion of contract liabilities were $77.8 million and $9.1 million, respectively.

11


Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

 

Note 4Segment 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.

 

The health care distribution reportable segment aggregates our global dental and medical operating segments. This segment 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 and vitamins. 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 businesses serve practitioners in 32 countries worldwide.

 

Our global technology and value-added services businesses provide 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 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.

 

The following tables present information about our reportable and operating segments:

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

 

September 25,

 

September 26,

 

September 25,

 

September 26,

 

 

 

 

 

2021

 

2020

 

2021

 

2020

Net Sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

Health care distribution (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dental

 

$

1,822,894

 

$

1,649,853

 

$

5,522,166

 

$

4,066,221

 

 

Medical

 

 

1,186,812

 

 

1,027,146

 

 

3,084,677

 

 

2,445,644

 

 

Total health care distribution

 

 

3,009,706

 

 

2,676,999

 

 

8,606,843

 

 

6,511,865

 

Technology and value-added services (2)

 

 

168,609

 

 

138,355

 

 

463,656

 

 

375,547

 

 

Total excluding Corporate TSA revenue

 

 

3,178,315

 

 

2,815,354

 

 

9,070,499

 

 

6,887,412

 

Corporate TSA revenues (3)

 

 

-

 

 

24,792

 

 

-

 

 

66,004

 

 

Total

 

$

3,178,315

 

$

2,840,146

 

$

9,070,499

 

$

6,953,416

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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, and financial services on a non-recourse basis, e-services, continuing education services for practitioners, consulting and other services.

(3) Corporate TSA revenues represents sales of certain products to Covetrus under the transition services agreement entered into in connection with the Animal Health Spin-off, which ended in December 2020. See Note-18 Related Party Transactionsfor further information.

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

 

September 25,

 

September 26,

 

September 25,

 

September 26,

 

 

 

 

 

2021

 

2020

 

2021

 

2020

Operating Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Health care distribution

 

$

179,275

 

$

148,658

 

$

558,968

 

$

271,477

 

Technology and value-added services

 

 

31,546

 

 

39,013

 

 

92,127

 

 

82,626

 

 

Total

 

$

210,821

 

$

187,671

 

$

651,095

 

$

354,103

12


Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

 

Note 5 – Debt

 

Bank Credit Lines

 

Bank credit lines consisted of the following:

 

 

 

 

September 25,

 

December 26,

 

 

 

2021

 

2020

Revolving credit agreement

 

$

-

 

$

-

Other short-term bank credit lines

 

 

59,394

 

 

73,366

Total

 

$

59,394

 

$

73,366

 

Revolving Credit Agreement

 

On August 20, 2021, we entered into a new $1 billion revolving credit agreement (the “Credit Agreement”). This facility, which matures on August 20, 2026, replaced our $750 million revolving credit facility, which was scheduled 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. We expect most LIBOR rates to be discontinued immediately after December 31, 2021, while the remaining LIBOR rates will be discontinued immediately after June 30, 2023. We do not expect the discontinuation of LIBOR as a reference rate in our debt agreements to have a material adverse effect on our financial position or to materially affect our interest expense. The Credit Agreement 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 September 25, 2021, and December 26, 2020, we had no borrowings under this revolving credit facility. As of September 25, 2021, and December 26, 2020, there were $9.1 million and $9.5 million of letters of credit, respectively, provided to third parties under the credit facility.

 

On April 17, 2020, we amended the Credit Agreement to, among other things, (i) modify the financial covenant from being based on total leverage ratio to net leverage ratio, (ii) adjust the pricing grid to reflect the net leverage ratio calculation, and (iii) increase the maximum maintenance leverage ratio through March 31, 2021.

 

364-Day Credit Agreement

 

On March 4, 2021, we repaid the outstanding obligations and terminated the lender commitments under our $700 million 364-day credit agreement, which was entered into on April 17, 2020. This facility was originally scheduled to mature on April 16, 2021.

 

Other Short-Term Credit Lines

 

As of September 25, 2021 and December 26, 2020, we had various other short-term bank credit lines available, of which $59.4 million and $73.4 million, respectively, were outstanding. At September 25, 2021 and December 26, 2020, borrowings under all of these credit lines had a weighted average interest rate of 7.42% and 4.14%, respectively.

13


Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

 

Long-term debt

 

Long-term debt consisted of the following:

 

 

 

 

September 25,

 

December 26,

 

 

 

2021

 

2020

Private placement facilities

 

$

706,433

 

$

613,498

Note payable

 

 

-

 

 

1,554

Various collateralized and uncollateralized loans payable with interest,

 

 

 

 

 

 

 

in varying installments through 2023 at interest rates

 

 

 

 

 

 

 

ranging from 2.45% to 4.27% at September 25, 2021 and

 

 

 

 

 

 

 

ranging from 2.62% to 4.27% at December 26, 2020

 

 

3,566

 

 

4,596

Finance lease obligations (see Note 6)

 

 

5,179

 

 

5,961

 

Total

 

 

715,178

 

 

625,609

Less current maturities

 

 

(9,638)

 

 

(109,836)

 

Total long-term debt

 

$

705,540

 

$

515,773

 

Private Placement Facilities

 

Our private placement facilities, with three insurance companies, have a total facility amount of $1 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 June 23, 2023. The facilities allow us to issue senior promissory notes to the lenders at a fixed rate based on an agreed upon spread over applicable treasury notes at the time of issuance. The term of each possible issuance will be selected by us and can range from five to 15 years (with an average life no longer than 12 years). The proceeds of any issuances under the facilities will be used for general corporate purposes, including working capital and capital expenditures, to refinance existing indebtedness, and/or to fund potential acquisitions. The agreements provide, among other things, that we maintain certain maximum leverage ratios, and contain restrictions relating to subsidiary indebtedness, liens, affiliate transactions, disposal of assets and certain changes in ownership. These facilities contain make-whole provisions in the event that we pay off the facilities prior to the applicable due dates.

 

On March 5, 2021, we amended the private placement facilities to, among other things, (a) modify the financial covenant from being based on a net leverage ratio to a total leverage ratio and (b) restore the maximum maintenance total leverage ratio to 3.25x and remove the 1.00% interest rate increase triggered if the net leverage ratio were to exceed 3.0x.

 

On October 20, 2021, we amended our three private placement facilities with insurance companies and entered into a fourth private placement facility with another insurance company, increasing the total facilities amount to $1.5 billion and extending the maturity date of the existing facilities. The maturity date for our private placement facilities is October 20, 2026.

14


Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

 

The components of our private placement facility borrowings as of September 25, 2021 are presented in the following table (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

Amount of

 

 

 

 

 

 

 

Borrowing

 

Borrowing

 

 

Date of Borrowing

 

Outstanding

 

Rate

 

Due Date

January 20, 2012 (1)

 

$

7,143

 

3.09

%

 

January 20, 2022

January 20, 2012

 

 

50,000

 

3.45

 

 

January 20, 2024

December 24, 2012

 

 

50,000

 

3.00

 

 

December 24, 2024

June 16, 2017

 

 

100,000

 

3.42

 

 

June 16, 2027

September 15, 2017

 

 

100,000

 

3.52

 

 

September 15, 2029

January 2, 2018

 

 

100,000

 

3.32

 

 

January 2, 2028

September 2, 2020

 

 

100,000

 

2.35

 

 

September 2, 2030

June 2, 2021

 

 

100,000

 

2.48

 

 

June 2, 2031

June 2, 2021

 

 

100,000

 

2.58

 

 

June 2, 2033

Less: Deferred debt issuance costs

 

 

(710)

 

 

 

 

 

 

 

$

706,433

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Annual repayments of approximately $7.1 million for this borrowing commenced on January 20, 2016.

 

U.S. Trade Accounts Receivable Securitization

 

We have a facility agreement with a bank, as agent, based on the securitization of our U.S. trade accounts receivable that is structured as an asset-backed securitization program with pricing committed for up to three years. Our current facility, which has a purchase limit of $350 million, was scheduled to expire on April 29, 2022. On June 22, 2020, the expiration date for this facility was extended to June 12, 2023 and was amended to adjust certain covenant levels for 2020. As of September 25, 2021 and December 26, 2020, there were no borrowings outstanding under this securitization facility. At September 25, 2021, the interest rate on borrowings under this facility was based on the asset-backed commercial paper rate of 0.13% plus 0.95%, for a combined rate of 1.08%. At December 26, 2020, the interest rate on borrowings under this facility was based on the asset-backed commercial paper rate of 0.22% plus 0.95%, for a combined rate of 1.17%.

 

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 25 to 45 basis points depending upon program utilization.

 

On October 20, 2021, we amended our U.S. trade accounts receivable securitization facility to increase the purchase limit to $450 million with two banks as agents and extend the expiration date to October 18, 2024.

15


Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

 

 

Note 6 – Leases

 

We have operating and finance leases for corporate offices, office space, distribution and other facilities, vehicles, and certain equipment. Our leases have remaining terms of less than one year to approximately 20 years, some of which may include options to extend the leases for up to 10 years. The components of lease expense were as follows:

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

 

 

September 25,

 

September 26,

 

September 25,

 

September 26,

 

 

 

 

 

 

2021

 

2020

 

2021

 

2020

 

Operating lease cost: (1)

 

$

26,914

 

$

21,343

 

$

75,860

 

$

65,413

 

Finance lease cost:

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of right-of-use assets

 

 

573

 

 

434

 

 

1,693

 

 

1,148

 

Interest on lease liabilities

 

 

24

 

 

29

 

 

77

 

 

86

 

Total finance lease cost

 

$

597

 

$

463

 

$

1,770

 

$

1,234

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Includes variable lease expenses.

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental balance sheet information related to leases is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 25,

 

December 26,

 

 

 

 

 

 

2021

 

2020

 

Operating Leases:

 

 

 

 

 

 

 

Operating lease right-of-use assets

 

$

329,886

 

$

288,847

 

 

 

 

 

 

 

 

 

 

 

 

Current operating lease liabilities

 

 

77,383

 

 

64,716

 

Non-current operating lease liabilities

 

 

270,152

 

 

238,727

 

 

Total operating lease liabilities

 

$

347,535

 

$

303,443

 

 

 

 

 

 

 

 

 

 

 

 

Finance Leases:

 

 

 

 

 

 

 

Property and equipment, at cost

 

$

11,255

 

$

10,683

 

Accumulated depreciation

 

 

(5,470)

 

 

(4,277)

 

Property and equipment, net of accumulated depreciation

 

$

5,785

 

$

6,406

 

 

 

 

 

 

 

 

 

 

 

 

Current maturities of long-term debt

 

$

2,219

 

$

2,420

 

Long-term debt

 

 

2,960

 

 

3,541

 

 

Total finance lease liabilities

 

$

5,179

 

$

5,961

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Remaining Lease Term in Years:

 

 

 

 

 

 

 

 

Operating leases

 

 

7.4

 

 

7.5

 

 

Finance leases

 

 

4.0

 

 

4.3

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Discount Rate:

 

 

 

 

 

 

 

 

Operating leases

 

 

2.5

%

 

2.8

%

 

Finance leases

 

 

1.7

%

 

1.9

%

16


Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

 

Supplemental cash flow information related to leases is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

September 25,

 

September 26,

 

 

 

 

 

 

2021

 

2020

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

 

 

 

 

Operating cash flows for operating leases

 

$

62,363

 

$

57,666

 

 

Operating cash flows for finance leases

 

 

67

 

 

76

 

 

Financing cash flows for finance leases

 

 

2,129

 

 

1,515

 

Right-of-use assets obtained in exchange for lease obligations:

 

 

 

 

 

 

 

 

Operating leases

 

$

101,192

 

$

66,082

 

 

Finance leases

 

 

1,488

 

 

2,489

 

 

Maturities of lease liabilities are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 25, 2021

 

 

 

 

 

 

 

Operating

 

 

Finance

 

 

 

 

 

 

 

Leases

 

 

Leases

 

2021

 

$

22,362

 

$

699

 

2022

 

 

80,662

 

 

1,990

 

2023

 

 

57,878

 

 

1,015

 

2024

 

 

43,237

 

 

416

 

2025

 

 

38,621

 

 

355

 

Thereafter

 

 

138,529

 

 

888

 

Total future lease payments

 

 

381,289

 

 

5,363

 

Less: imputed interest

 

 

(33,754)

 

 

(184)

 

Total

 

$

347,535

 

$

5,179

 

 

As of September 25, 2021, we have additional operating leases with total lease payments of $10.8 million for buildings and vehicles that have not yet commenced. These operating leases will commence subsequent to September 25, 2021, with lease terms of two years to 10 years.

17


Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

 

Note 7 – 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 (“ASC”) 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 nine months ended September 25, 2021 and the year ended December 26, 2020 are presented in the following table:

 

 

 

 

September 25,

 

December 26,

 

 

 

2021

 

2020

Balance, beginning of period

 

$

327,699

 

$

287,258

Decrease in redeemable noncontrolling interests due to

 

 

 

 

 

 

 

redemptions

 

 

(50,292)

 

 

(17,241)

Increase in redeemable noncontrolling interests due to business

 

 

 

 

 

 

 

acquisitions

 

 

189,870

 

 

28,387

Net income attributable to redeemable noncontrolling interests

 

 

19,770

 

 

13,363

Dividends declared

 

 

(13,959)

 

 

(12,631)

Effect of foreign currency translation loss attributable to

 

 

 

 

 

 

 

redeemable noncontrolling interests

 

 

(4,098)

 

 

(4,279)

Change in fair value of redeemable securities

 

 

143,592

 

 

32,842

Balance, end of period

 

$

612,582

 

$

327,699

 

Note 8 – 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:

 

 

 

 

 

September 25,

 

December 26,

 

 

 

 

2021

 

2020

Attributable to Redeemable noncontrolling interests:

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

$

(28,715)

 

$

(24,617)

 

 

 

 

 

 

 

 

 

Attributable to noncontrolling interests:

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

$

395

 

$

235

 

 

 

 

 

 

 

 

 

Attributable to Henry Schein, Inc.:

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

$

(112,732)

 

$

(76,565)

 

Unrealized loss from foreign currency hedging activities

 

 

(6,342)

 

 

(11,488)

 

Unrealized investment gain

 

 

-

 

 

1

 

Pension adjustment loss

 

 

(18,566)

 

 

(20,032)

 

 

Accumulated other comprehensive loss

 

$

(137,640)

 

$

(108,084)

 

 

 

 

 

 

 

 

 

Total Accumulated other comprehensive loss

 

$

(165,960)

 

$

(132,466)

18


Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

 

The following table summarizes the components of comprehensive income, net of applicable taxes as follows:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 25,

 

September 26,

 

September 25,

 

September 26,

 

 

2021

 

2020

 

2021

 

2020

Net income

 

$

169,474

 

$

151,784

 

$

508,379

 

$

272,082

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation gain (loss)

 

 

(39,762)

 

 

37,588

 

 

(40,105)

 

 

(17,316)

Tax effect

 

 

-

 

 

-

 

 

-

 

 

-

Foreign currency translation gain (loss)

 

 

(39,762)

 

 

37,588

 

 

(40,105)

 

 

(17,316)

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) from foreign currency hedging

 

 

 

 

 

 

 

 

 

 

 

 

activities

 

 

4,708

 

 

(10,490)

 

 

6,965

 

 

3,010

Tax effect

 

 

(1,172)

 

 

2,793

 

 

(1,819)

 

 

(553)

Unrealized gain (loss) from foreign currency hedging

 

 

 

 

 

 

 

 

 

 

 

 

activities

 

 

3,536

 

 

(7,697)

 

 

5,146

 

 

2,457

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized investment gain (loss)

 

 

3

 

 

2

 

 

(1)

 

 

(6)

Tax effect

 

 

(1)

 

 

-

 

 

-

 

 

1

Unrealized investment gain (loss)

 

 

2

 

 

2

 

 

(1)

 

 

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension adjustment gain (loss)

 

 

893

 

 

(471)

 

 

1,916

 

 

227

Tax effect

 

 

(269)

 

 

133

 

 

(450)

 

 

(66)

Pension adjustment gain (loss)

 

 

624

 

 

(338)

 

 

1,466

 

 

161

Comprehensive income

 

$

133,874

 

$

181,339

 

$

474,885

 

$

257,379

 

The change in the unrealized gain (loss) from foreign currency hedging activities during the three and nine months ended September 25, 2021, compared to the comparable prior year period, was primarily attributable to a net investment hedge that was entered into during 2019. See Note 14-Derivatives and Hedging Activities

for further information.

 

Our financial statements are denominated in the U.S. Dollar currency. Fluctuations in the value of foreign currencies as compared to the U.S. Dollar may have a significant impact on our comprehensive income. The foreign currency translation gain (loss) during the nine months ended September 25, 2021 and nine months ended September 26, 2020 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

 

Nine Months Ended

 

 

 

September 25,

 

September 26,

 

September 25,

 

September 26,

 

 

 

2021

 

2020

 

2021

 

2020

Comprehensive income attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

Henry Schein, Inc.

 

$

131,425

 

$

169,616

 

$

454,443

 

$

257,202

Comprehensive income attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests

 

 

1,380

 

 

4,354

 

 

4,770

 

 

3,923

Comprehensive income (loss) attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

 

1,069

 

 

7,369

 

 

15,672

 

 

(3,746)

Comprehensive income

 

$

133,874

 

$

181,339

 

$

474,885

 

$

257,379

19


Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

 

Note 9 – 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. 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 as of September 25, 2021 and December 26, 2020 was estimated at $774.6 million and $699.0 million, respectively. Factors that we considered when estimating the fair value of our debt include market conditions, such as interest rates and credit spreads.

 

Derivative contracts

 

Derivative contracts are valued using quoted market prices and significant other observable and unobservable 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 retirement plan and our deferred compensation plan.

20


Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

 

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. See Note 14-Derivatives and Hedging Activities

for further information.

 

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 7–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 September 25, 2021 and December 26, 2020:

 

 

 

 

 

September 25, 2021

 

 

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative contracts

 

$

-

 

$

1,141

 

$

-

 

$

1,141

 

 

Total assets

 

$

-

 

$

1,141

 

$

-

 

$

1,141

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative contracts

 

$

-

 

$

1,905

 

$

-

 

$

1,905

 

Total return swaps

 

 

-

 

 

408

 

 

-

 

 

408

 

 

Total liabilities

 

$

-

 

$

2,313

 

$

-

 

$

2,313

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

$

-

 

$

-

 

$

612,582

 

$

612,582

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 26, 2020

 

 

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative contracts

 

$

-

 

$

1,868

 

$

-

 

$

1,868

 

Total return swaps

 

 

-

 

 

1,565

 

 

-

 

 

1,565

 

 

Total assets

 

$

-

 

$

3,433

 

$

-

 

$

3,433

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative contracts

 

$

-

 

$

11,765

 

$

-

 

$

11,765

 

 

Total liabilities

 

$

-

 

$

11,765

 

$

-

 

$

11,765

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

$

-

 

$

-

 

$

327,699

 

$

327,699

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HENRY SCHEIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

 

Note 10Business Acquisitions

 

Acquisitions

 

We completed acquisitions during the nine months ended September 25, 2021 which were immaterial to our financial statements. The acquisitions that we completed included companies within our health care distribution and technology and value-added services segments. The initial ownership interest we acquired in these companies ranged from approximately 51% to 100%. Acquisitions within our health care distribution segment included companies that specialize in the distribution and manufacturing of dental and medical products, a provider of home medical supplies, and a provider of 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 summarizes the estimated fair value, as of the date of acquisition, of consideration paid and net assets acquired for acquisitions during the nine months ended September 25, 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

$

435,216

Redeemable noncontrolling interests

 

179,086

Total consideration

 

614,302

 

 

 

Identifiable assets acquired and liabilities assumed:

 

 

Current assets

 

158,657

Intangible assets

 

258,501

Other noncurrent assets

 

38,519

Current liabilities

 

(62,176)

Deferred income taxes

 

(17,580)

Other noncurrent liabilities

 

(38,271)

Total identifiable net assets

 

337,650

Goodwill

 

284,151

Total net assets acquired

$

621,801

 

The major classes of assets and liabilities that we generally allocate purchase price to, excluding goodwill, include identifiable intangible assets (i.e., trademarks and trade names, customer relationships and lists, non-compete agreements and product development), property, plant and equipment, deferred income taxes and other current and long-term assets and liabilities. The estimated fair value of identifiable intangible assets is based on critical judgments and assumptions derived from analysis of market conditions, including discount rates, projected revenue growth rates, estimated customer attrition and projected cash flows. These assumptions are forward-looking and could be affected by future economic and market conditions.

 

Certain 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 nine months ended September 25, 2021 and September 26, 2020, there were no material adjustments recorded in our consolidated statements of income relating to changes in estimated contingent purchase price liabilities.

 

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HENRY SCHEIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

 

Note 11 – Plans of Restructuring

 

On November 20, 2019, we committed to a contemplated restructuring initiative intended to mitigate stranded costs associated with the Animal Health Spin-off and to rationalize operations and to provide expense efficiencies. These activities were originally expected to be completed by the end of 2020. In light of the changes to the business environment brought on by the COVID-19 pandemic, we extended such activities to the end of 2021.

 

During the three months ended September 25, 2021 and September 26, 2020, we recorded restructuring costs (credits) of $(0.2) million and $7.0 million. During the nine months ended September 25, 2021 and September 26, 2020, we recorded restructuring costs of $3.4 million and $27.7 million. The restructuring costs (credits) for these periods included costs (credits) for severance benefits and facility exit costs. The costs (credits) associated with these restructurings are included in a separate line item, “Restructuring costs (credits)” within our consolidated statements of income.

 

We are currently unable in good faith to make a determination of an estimate of the amount or range of amounts expected to be incurred in connection with these activities in 2021, both with respect to each major type of cost associated therewith and with respect to the total cost, or an estimate of the amount or range of amounts that will result in future cash expenditures.

 

The following table shows the net amounts expensed and paid for restructuring costs that were incurred during the nine months ended September 25, 2021 and during our 2020 fiscal year and the remaining accrued balance of restructuring costs as of September 25, 2021, which is included in Accrued expenses: Other within our consolidated balance sheets:

 

 

 

 

 

 

 

Facility

 

 

 

 

 

 

 

 

 

Severance

 

Closing

 

 

 

 

 

 

 

 

 

Costs

 

Costs

 

Other

 

Total

Balance, December 28, 2019

 

$

12,911

 

$

826

 

$

73

 

$

13,810

Provision

 

 

25,855

 

 

5,878

 

 

360

 

 

32,093

Payments and other adjustments

 

 

(26,152)

 

 

(6,309)

 

 

(329)

 

 

(32,790)

Balance, December 26, 2020

 

$

12,614

 

$

395

 

$

104

 

$

13,113

Provision

 

 

3,234

 

 

(105)

 

 

231

 

 

3,360

Payments and other adjustments

 

 

(13,746)

 

 

10

 

 

(332)

 

 

(14,068)

Balance, September 25, 2021

 

$

2,102

 

$

300

 

$

3

 

$

2,405

 

The following table shows, by reportable segment, the net amounts expensed and paid for restructuring costs that were incurred during the nine months ended September 25, 2021 and during our 2020 fiscal year and the remaining accrued balance of restructuring costs as of September 25, 2021:

 

 

 

 

 

 

 

Technology and

 

 

 

 

 

Health Care

 

Value-Added

 

 

 

 

 

 

Distribution

 

Services

 

Total

Balance, December 28, 2019

 

$

13,373

 

$

437

 

$

13,810

Provision

 

 

30,935

 

 

1,158

 

 

32,093

Payments and other adjustments

 

 

(31,484)

 

 

(1,306)

 

 

(32,790)

Balance, December 26, 2020

 

$

12,824

 

$

289

 

$

13,113

Provision

 

 

2,830

 

 

530

 

 

3,360

Payments and other adjustments

 

 

(13,563)

 

 

(505)

 

 

(14,068)

Balance, September 25, 2021

 

$

2,091

 

$

314

 

$

2,405

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Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

 

Note 12Earnings 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 restricted stock units 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

 

Nine Months Ended

 

 

 

September 25,

 

September 26,

 

September 25,

 

September 26,

 

 

 

2021

 

2020

 

2021

 

2020

Basic

 

139,377

 

142,362

 

140,661

 

142,553

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

Stock options, restricted stock and restricted stock units

 

1,702

 

729

 

1,518

 

755

 

Diluted

 

141,079

 

143,091

 

142,179

 

143,308

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Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

 

Note 13 – Income Taxes

 

 

For the nine months ended September 25, 2021 our effective tax rate was 24.2% compared to 20.0% for the prior year period. The difference between our effective tax rates and the federal statutory tax rate for the nine months ended September 25, 2021 primarily relates to state and foreign income taxes, interest expense and tax charges and credits associated with legal entity reorganizations. The difference between our effective tax rate and the federal statutory tax rate for the nine months ended September 26, 2020 was primarily due to a U.S. federal income tax settlement reached during the third quarter, which lowered income tax expense by approximately $15.6 million, as well as state and foreign income taxes and interest expense.

 

The American Rescue Plan Act of 2021 (“ARPA”) was signed into law on March 11, 2021. The ARPA included a corporate income tax provision to further limit the deductibility of compensation under Section 162(m) for tax years starting after December 31, 2026. Section 162(m) generally limits the deductibility of compensation paid to covered employees of publicly held corporations. Covered employees include the CEO, CFO and the three highest paid officers. The ARPA expands the group of covered employees to additionally include five of the highest paid employees.

 

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act includes, but is not limited to, certain income tax provisions that modify the Section 163(j) limitation of business interest and net operating loss carryover and carryback rules. We have analyzed the income tax provisions of the CARES Act and have accounted for the impact in the nine months ended September 26, 2020, which did not have a material impact on our consolidated financial statements. There are certain other non-income tax benefits available to us under the CARES Act that require further clarification or interpretation that may affect our consolidated financial statements in the future.

 

The total amount of unrecognized tax benefits, which are included in “Other liabilities” within our consolidated balance sheets, as of September 25, 2021 was approximately $79.0 million, of which $64.3 million 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.

 

The tax years subject to examination by major tax jurisdictions include years 2017 and forward by the U.S Internal Revenue Service (the “IRS”) as well as the years 2008 and forward for certain states and certain foreign jurisdictions. All tax returns audited by the IRS are officially closed through 2016. During the quarter ended June 26, 2021 we reached a resolution with the Appellate Division for all remaining outstanding issues for 2012 and 2013. The resolution did not have a material impact to our consolidated financial statements. We reached a settlement with the U.S. Competent Authority to resolve certain transfer pricing issues related to 2012 and 2013 in the quarter ended December 28, 2019. During the quarter ended September 26, 2020 we finalized negotiations with the Advance Pricing Division and reached an agreement on an appropriate transfer pricing methodology for the years 2014-2025. The objective of this resolution was to mitigate future transfer pricing audit adjustments. In the fourth quarter of 2020, we reached a favorable resolution with the IRS relating to select audit years.

 

The total amounts of interest and penalties are classified as a component of the provision for income taxes. The amount of tax interest credits were approximately $(2.2) million for the nine months ended September 25, 2021, and $(1.1) million for the nine months ended September 26, 2020. The total amount of accrued interest is included in “Other liabilities,” and was approximately $11.7 million as of September 25, 2021 and $14.0 million as of December 26, 2020. No penalties were accrued for the periods presented.

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Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

 

Note 14Derivatives and Hedging Activities

 

We are exposed to market risks as well as changes in foreign currency exchange rates as measured against the U.S. dollar and each other, and changes to the credit risk of the derivative counterparties. We attempt to minimize these risks by primarily using foreign currency forward contracts and by maintaining counter-party credit limits. These hedging activities provide only limited protection against currency exchange and credit risks. Factors that could influence the effectiveness of our hedging programs include currency markets and availability of hedging instruments and liquidity of the credit markets. All foreign currency forward contracts that we enter into are components of hedging programs and are entered into for the sole purpose of hedging an existing or anticipated currency exposure. We do not enter into such contracts for speculative purposes and we manage our credit risks by diversifying our counterparties, maintaining a strong balance sheet and having multiple sources of capital.

 

During 2019 we entered into foreign currency forward contracts to hedge a portion of our euro-denominated foreign operations which are designated as net investment hedges. These net investment hedges offset the change in the U.S. dollar value of our investment in certain euro-functional currency subsidiaries due to fluctuating foreign exchange rates. Gains and losses related to these net investment hedges are recorded in Accumulated other comprehensive loss within our consolidated balance sheets. Amounts excluded from the assessment of hedge effectiveness are included in interest expense within our consolidated statements of income. The aggregate notional value of this net investment hedge, which matures on November 16, 2023, is approximately €200 million. During the three months ended September 25, 2021 and September 26, 2020, we recognized approximately $1.1 million and $1.2 million, respectively, of interest savings as a result of this net investment hedge. During the nine months ended September 25, 2021 and September 26, 2020, we recognized approximately $3.3 and $3.6 million, respectively, of interest savings as a result of this net investment hedge.

 

On March 20, 2020, we entered into a total return swap for the purpose of economically hedging our unfunded non-qualified supplemental retirement plan (“SERP”) and our deferred compensation plan (“DCP”). This swap will offset changes in our SERP and DCP liabilities. At the inception, the notional value of the investments in these plans was $43.4 million. At September 25, 2021, the notional value of the investments in these plans was $86.0 million. At September 25, 2021, the financing blended rate for this swap was based on LIBOR of 0.08% plus 0.47%, for a combined rate of 0.55%. For the three months and nine months ended September 25, 2021, we have recorded a gain, within the selling, general and administrative line item in our consolidated statement of income, of approximately $2.0 million and $10.1 million, respectively, net of transaction costs, related to this undesignated swap. For the three months and nine months ended September 26, 2020, we have recorded a gain, within the selling, general and administrative line item in our consolidated statement of income, of approximately $3.8 million and $14.2 million, respectively, net of transaction costs, related to this undesignated swap. This swap is expected to be renewed on an annual basis after its current expiration date of March 29, 2022, and is expected to result in a neutral impact to our results of operations.

 

Fluctuations in the value of certain foreign currencies as compared to the U.S. dollar may positively or negatively affect our revenues, gross margins, operating expenses and retained earnings, all of which are expressed in U.S. dollars. Where we deem it prudent, we engage in hedging programs using primarily foreign currency forward contracts aimed at limiting the impact of foreign currency exchange rate fluctuations on earnings. We purchase short-term (i.e., generally 18 months or less) foreign currency forward contracts to protect against currency exchange risks associated with intercompany loans due from our international subsidiaries and the payment of merchandise purchases to our foreign suppliers. We do not hedge the translation of foreign currency profits into U.S. dollars, as we regard this as an accounting exposure, not an economic exposure. Our hedging activities have historically not had a material impact on our consolidated financial statements. Accordingly, additional disclosures related to derivatives and hedging activities required by ASC 815 have been omitted.

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Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

 

Note 15 – Stock-Based Compensation

 

Our accompanying consolidated statements of income reflect pre-tax stock-based compensation expense of $27.5 million ($20.9 million after-tax) and $57.7 million ($43.8 million after-tax) for the three and nine months ended September 25, 2021, respectively. For the three and nine months ended September 26, 2020 we recorded pre-tax stock-based compensation expense of $5.7 million ($4.1 million after-tax) and a credit of $6.6 million ($5.3 million after-tax), respectively. The $6.6 million credit for stock-based compensation during the nine months ended September 26, 2020 reflected our reduced estimate in expected achievement of performance-based targets resulting from the impact of COVID-19.

 

Our accompanying consolidated statements of cash flows present our stock-based compensation expense (credit) as an adjustment to reconcile net income to net cash provided by operating activities for all periods presented. In the accompanying consolidated statements of cash flows, there were no benefits associated with tax deductions in excess of recognized compensation as a cash inflow from financing activities for the nine months ended September 25, 2021 and September 26, 2020, respectively.

 

Stock-based compensation represents the cost related to stock-based awards granted to employees and non-employee directors. We measure stock-based compensation at the grant date, based on the estimated fair value of the award, and recognize the cost (net of estimated forfeitures) as compensation expense over the requisite service period. Our stock-based compensation expense is reflected in selling, general and administrative expenses in our consolidated statements of income.

 

Stock-based awards are provided to certain employees and non-employee directors under the terms of our 2020 Stock Incentive Plan and 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 have been granted solely in the form of restricted stock units (“RSUs”). However, beginning in 2021, our equity-based awards have been granted in the form of RSUs and non-qualified stock options.

 

Grants of 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 that vest solely based on the recipient’s continued service over time (primarily four-year cliff vesting, except for grants made under the 2015 Non-Employee Director Stock Incentive Plan, which are primarily 12-month cliff vesting), and RSUs that vest based on our achieving specified performance measurements and the recipient’s continued service over time (primarily three-year cliff vesting). For these RSUs, we recognize the cost as compensation expense on a straight-line basis.

 

During the three months ended March 27, 2021, as a result of the continuing economic risk and uncertainty resulting from the ongoing COVID-19 pandemic, the Compensation Committee decided to adjust the form of awards granted under our 2021 long-term incentive program for our 2021 fiscal year in a manner that focuses on our long-term value by granting stock options and time-based RSUs rather than performance-based RSUs. 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 during 2021 vest one-third per year based on the recipient’s continued service, subject to the terms and conditions of the Plans, 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.

 

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Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

 

In addition to equity-based awards under the 2021 long-term incentive program under the 2020 Stock Incentive Plan, 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. These time-based RSU awards will vest 50% on the first anniversary of the grant date and 50% on the second anniversary of the grant date, based on the recipient’s continued service and subject to the terms and conditions of the Plans, and are recorded as compensation expense using a graded vesting method.

 

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

 

The Plans provide for adjustments to the performance-based restricted stock units targets for significant events, including, without limitation, acquisitions, divestitures, new business ventures, certain capital transactions (including share repurchases), 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 and foreign exchange fluctuations. 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.

 

Total unrecognized compensation cost related to unvested awards as of September 25, 2021 was $85.7 million, which is expected to be recognized over a weighted-average period of approximately 2.2 years.

 

The following weighted-average assumptions were used in determining the most recent fair values of stock options granted using the Black-Scholes valuation model:

 

 

 

 

Expected dividend yield

 

0.0

%

Expected stock price volatility

 

27.00

%

Risk-free interest rate

 

0.97

%

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.

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Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

 

The following table summarizes stock option activity under the Plans during the nine months ended September 25, 2021:

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

Weighted

 

Remaining

 

 

 

 

 

 

 

Average

 

Contractual

 

Aggregate

 

 

 

 

Exercise

 

Life in

 

Intrinsic

 

 

Shares

 

Price

 

Years

 

Value

Outstanding at beginning of period

 

-

 

$

-

 

 

 

 

 

Granted

 

807

 

 

63.05

 

 

 

 

 

Exercised

 

-

 

 

-

 

 

 

 

 

Forfeited

 

(6)

 

 

62.99

 

 

 

 

 

Outstanding at end of period

 

801

 

$

63.05

 

9.4

 

$

15.05

 

 

 

 

 

 

 

 

 

 

 

Options exercisable at end of period

 

1

 

$

62.71

 

 

 

 

 

 

The following tables summarize the activity of our unvested RSUs for the nine months ended September 25, 2021:

 

 

 

Time-Based Restricted Stock Units

 

 

 

 

Weighted Average

 

 

 

 

 

 

 

Grant Date Fair

 

 

Intrinsic Value

 

 

Shares/Units

 

Value Per Share

 

 

Per Share

Outstanding at beginning of period

 

1,459

 

$

57.61

 

 

 

 

Granted

 

833

 

 

63.24

 

 

 

 

Vested

 

(266)

 

 

66.85

 

 

 

 

Forfeited

 

(32)

 

 

60.13

 

 

 

 

Outstanding at end of period

 

1,994

 

$

58.77

 

 

$

78.10

 

 

 

 

 

 

 

 

 

 

 

 

Performance-Based Restricted Stock Units

 

 

 

 

Weighted Average

 

 

 

 

 

 

 

Grant Date Fair

 

 

Intrinsic Value

 

 

Shares/Units

 

Value Per Share

 

 

Per Share

Outstanding at beginning of period

 

136

 

$

53.52

 

 

 

 

Granted

 

531

 

 

58.92

 

 

 

 

Vested

 

(84)

 

 

52.35

 

 

 

 

Forfeited

 

(14)

 

 

59.34

 

 

 

 

Outstanding at end of period

 

569

 

$

59.65

 

 

$

78.10

 

Note 16 – Supplemental Cash Flow Information

 

Cash paid for interest and income taxes was:

 

 

 

Nine Months Ended

 

 

September 25,

 

September 26,

 

 

2021

 

2020

Interest

 

$

21,959

 

$

29,551

Income taxes

 

 

178,804

 

 

164,575

 

During the nine months ended September 25, 2021 and September 26, 2020, we had a $7.0 million and $3.0 million of non-cash net unrealized gains related to foreign currency hedging activities, respectively.

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HENRY SCHEIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

 

Note 17 – Legal Proceedings

 

On May 29, 2018, an amended complaint was filed in the MultiDistrict Litigation (“MDL”) proceeding In Re National Prescription Opiate Litigation (MDL No. 2804; Case No. 17-md-2804) in an action entitled The County of Summit, Ohio et al. v. Purdue Pharma, L.P., et al., Civil Action No. 1:18-op-45090-DAP (“County of Summit Action”), in the U.S. District Court for the Northern District of Ohio, adding Henry Schein, Inc., Henry Schein Medical Systems, Inc. and others as defendants. Summit County alleged 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. and Henry Schein Medical Systems, Inc.) reaped financial rewards by refusing or otherwise failing to monitor appropriately and restrict the improper distribution of those drugs. On October 29, 2019, the Company was dismissed with prejudice from this lawsuit. Henry Schein, working with Summit County, donated $1 million to a foundation and paid $250,000 of Summit County’s expenses, as described in our prior filings with the SEC.

 

In addition to the County of Summit Action, Henry Schein and/or one or more of its affiliated companies have been named as a defendant in multiple lawsuits (currently approximately one-hundred and fifty (150)), which allege claims similar to those alleged in the County of Summit Action. These actions consist of some that have been consolidated within the MDL and are currently abated for discovery purposes, and others which remain pending in state courts and are proceeding independently and outside of the MDL. On October 9, 2020, the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida, Case No. CACE19018882, granted Henry Schein’s motion to dismiss the claims brought against it in the action filed by North Broward Hospital District et. al. The Florida court gave plaintiffs until November 24, 2020 to replead their claims against Henry Schein, and plaintiffs filed an amended complaint. On January 8, 2021, Henry Schein filed a motion to dismiss the amended complaint. On September 20, 2021, the Florida court denied Henry Schein’s motion to dismiss. At this time, the only case set for trial is the action filed by DCH Health Care Authority, et al. in Alabama state court, which is currently scheduled for a liability jury trial on plaintiffs’ public nuisance claims on July 18, 2022. Of Henry Schein’s 2020 revenue of approximately $10.1 billion from continuing operations, sales of opioids represented less than one-tenth of 1 percent. Opioids represent a negligible part of our business. We intend to defend ourselves vigorously against these actions.

 

On September 30, 2019, the City of Hollywood Police Officers Retirement System, individually and on behalf of all others similarly situated, filed a putative class action complaint for violation of the federal securities laws against Henry Schein, Inc., Covetrus, Inc., and Benjamin Shaw and Christine Komola (Covetrus’s then Chief Executive Officer and Chief Financial Officer, respectively) in the U.S. District Court for the Eastern District of New York, Case No. 2:19-cv-05530-FB-RLM. The complaint seeks to certify a class consisting of all persons and entities who, subject to certain exclusions, purchased or otherwise acquired Covetrus common stock from February 8, 2019 through August 12, 2019. The case relates to the Animal Health Spin-off and Merger of the Henry Schein Animal Health Business with Vets First Choice in February 2019. The complaint alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Securities and Exchange Commission Rule 10b-5 and asserts that defendants’ statements in the offering documents and after the transaction were materially false and misleading because they purportedly overstated Covetrus’s capabilities as to inventory management and supply-chain services, understated the costs of integrating the Henry Schein Animal Health Business and Vets First Choice, understated Covetrus’s separation costs from Henry Schein, and understated the impact on earnings from online competition and alternative distribution channels and from the loss of an allegedly large customer in North America just before the Separation and Merger. The complaint seeks unspecified monetary damages and a jury trial. Pursuant to the provisions of the PSLRA, the court appointed lead plaintiff and lead counsel on December 23, 2019. Lead plaintiff filed a Consolidated Class Action Complaint on February 21, 2020. Lead plaintiff added Steve Paladino, our Chief Financial Officer, as a defendant in the action. Lead plaintiff filed an Amended Consolidated Class Action Complaint on May 21, 2020, in which it added a claim that Mr. Paladino is a “control person” of Covetrus. On August 3, 2021, the court granted Henry Schein’s and Mr. Paladino’s motion to dismiss them from the case with prejudice.

 

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HENRY SCHEIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

 

On February 5, 2021, Jack Garnsey filed a putative shareholder derivative action on behalf of Covetrus, Inc. in the U.S. District Court for the Eastern District of New York, naming as defendants Benjamin Shaw, Christine T. Komola, Steven Paladino, Betsy Atkins, Deborah G. Ellinger, Sandra L. Helton, Philip A. Laskaway, Mark J. Manoff, Edward M. McNamara, Ravi Sachdev, David E. Shaw, Benjamin Wolin, and Henry Schein, Inc., with Covetrus, Inc. named as a nominal defendant. The complaint alleges that the individual defendants breached their fiduciary duties under state law in connection with the same allegations asserted in the City of Hollywood securities class action described above and further alleges that Henry Schein aided and abetted such breaches. The complaint also asserts claims for contribution under the federal securities laws against Henry Schein and other defendants, also arising out of the allegations in the City of Hollywood lawsuit. The complaint seeks declaratory, injunctive, and monetary relief. A second similar complaint, Stegmann v. Wolin, was filed in the same court on March 30, 2021, which did not name the Company as a defendant. We expect a consolidated amended complaint to be filed and Plaintiffs have agreed to dismiss Henry Schein from the consolidated amended complaint without prejudice; we expect the parties to submit a proposed order to the Court reflecting this agreement.

 

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 September 25, 2021, 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.

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HENRY SCHEIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

 

Note 18 – Related Party Transactions

 

On February 7, 2019 (the “Distribution Date”), we completed the separation (the “Separation”) and subsequent merger (“Merger”) of our animal health business (the “Henry Schein Animal Health Business”) with Direct Vet Marketing, Inc. (d/b/a Vets First Choice, “Vets First Choice”). This was accomplished by a series of transactions among us, Vets First Choice, Covetrus, Inc. (f/k/a HS Spinco, Inc. “Covetrus”), a wholly owned subsidiary of ours prior to the Distribution Date, and HS Merger Sub, Inc., a wholly owned subsidiary of Covetrus. In connection with the Separation, we contributed, assigned and transferred to Covetrus certain applicable assets, liabilities and capital stock or other ownership interests relating to the Henry Schein Animal Health Business. On the Distribution Date, we received a tax-free distribution of $1,120 million from Covetrus pursuant to certain debt financing incurred by Covetrus. On the Distribution Date and prior to the Animal Health Spin-off, Covetrus issued shares of Covetrus common stock to certain institutional accredited investors for $361.1 million (the “Share Sale”). The proceeds of the Share Sale were paid to Covetrus and distributed to us. Subsequent to the Share Sale, we distributed, on a pro rata basis, all of the shares of the common stock of Covetrus held by us to our stockholders of record as of the close of business on January 17, 2019 (the “Animal Health Spin-off”).

 

In connection with the completion of the Animal Health Spin-off during our 2019 fiscal year, we entered into a transition services agreement with Covetrus under which we agreed to provide certain transition services for up to twenty-four months in areas such as information technology, finance and accounting, human resources, supply chain, and real estate and facility services. Services provided under this transition services agreement ended in December 2020. During the three and nine months ended September 26, 2020, we recorded approximately $3.9 million and $12.7 million, respectively, of fees for these services. Covetrus also purchased certain products from us pursuant to the transition services agreement, which ended in December 2020. During the three and nine months ended September 26, 2020, net sales to Covetrus were approximately $24.8 million and $66.0 million, respectively.

 

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 $31.0 million annually for the use of their intellectual property. During the three and nine months ended September 25, 2021, we recorded $7.8 million and $23.4 million, respectively in connection with costs related to this royalty agreement. During the three and nine months ended September 26, 2020, we recorded $7.8 million and $23.4 million, respectively, in connection with costs related to this royalty agreement. As of September 25, 2021 and December 26, 2020, Henry Schein One, LLC had a net (payable) receivable balance due (to) from Internet Brands of $(14.7) million and $4.7 million, respectively, comprised of amounts related to results of operations and the royalty agreement.

 

During our normal course of business, we have interests in entities that we account for under the equity accounting method. During the three and nine months ended September 25, 2021, we recorded net sales of $17.7 million and $50.9 million, respectively, to such entities. During the three and nine months ended September 26, 2020, we recorded net sales of $13.4 million and $38 million, respectively, to such entities. During the three and nine months ended September 25, 2021, we purchased $4.8 million and $13.9 million, respectively, from such entities. During the three and nine months ended September 26, 2020, we purchased $4.3 million and $10.3 million, respectively, from such entities. At September 25, 2021 and December 26, 2020, in the aggregate we had $48.3 million and $36.9 million, due from our equity affiliates, and $9.6 million and $8.7 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 make additional testing available, the nature of those tests and the number of tests intended to be made available and the timing for availability, the nature of the target market, 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 or acts of terrorism; 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 potential 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 and potential trade barriers; 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 confidentiality of sensitive personal information or standards in electronic health records or transmissions; changes in tax legislation; litigation risks; new or unanticipated litigation developments and the status of litigation matters; cyberattacks or other privacy or data security breaches; risks associated with our global operations; our dependence on our senior management, as well as employee hiring and retention; 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

 

In March 2020, the World Health Organization declared COVID-19 a 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 response, many countries implemented business closures and restrictions, stay-at-home and social distancing ordinances and similar measures to combat the pandemic, which significantly impacted global business and dramatically reduced demand for dental products and certain medical products in the second quarter of 2020. Demand increased in the second half of 2020 and has continued into the third quarter of 2021 resulting in growth over the prior year driven by sales of PPE and COVID-19 related products.

 

Our consolidated financial statements reflect estimates and assumptions made by us that affect, among other things, our goodwill, long-lived asset and indefinite-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; vendor 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. In addition, 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 first nine months of 2021, patient traffic levels returned to levels approaching pre-pandemic levels. There is an ongoing risk that the COVID-19 pandemic may again have a material adverse effect on our business, results of operations and cash flows and may result in a material adverse effect on our financial condition and liquidity. However, the extent of the potential impact cannot be reasonably estimated at this time.

 

Recently the federal government has issued executive orders for government contractors regarding COVID-19 vaccine mandates. The federal government has also indicated that the Occupational Safety and Health Administration intends to issue regulations concerning vaccine mandates for employers. In addition, state governments and some customers have also issued vaccine requirements for workers in their jurisdictions or who may service their accounts, and some state regulations contradict the federal vaccine mandates. Also, at this time, it remains unclear whether international jurisdictions will impose vaccine mandates or additional COVID-19 regulations. It is possible that a significant number of our employees have not been vaccinated, and in the event of a vaccine mandate some of those employees may seek exemptions or otherwise resist vaccination. The imposition of vaccine mandates could potentially cause labor shortages if employees refuse to get vaccinated and their employment is terminated, either voluntarily or involuntarily. Such labor shortages could reduce our sales and/or affect our ability to fulfill customer orders, impacting our revenue and profitability. Furthermore, managing and tracking vaccination status and ongoing testing for exempt and/or unvaccinated employees could potentially increase our costs, as could addressing inconsistent mandates. COVID-19 vaccine mandates and similar regulations have the potential to significantly adversely affect our business, as the nature and effect of such mandates are uncertain at this time.

 

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Executive-Level Overview

 

Henry Schein, Inc. is a solutions company for health care professionals powered by a network of people and technology. We believe we are the world’s largest provider of health care products and services primarily to office-based dental and medical practitioners, as well as alternate sites of care. We serve more than one million customers worldwide including dental practitioners and laboratories and physician practices, 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 88 years of experience distributing health care products.

 

We are headquartered in Melville, New York, employ more than 21,000 people (of which more than 10,300 are based outside the United States) and have operations or affiliates in 32 countries and territories, including the United States, Australia, Austria, Belgium, Brazil, Canada, Chile, China, the Czech Republic, France, Germany, Hong Kong SAR, Ireland, Israel, Italy, Japan, Liechtenstein, Luxembourg, Malaysia, Mexico, the Netherlands, New Zealand, Poland, Portugal, Singapore, South Africa, Spain, Sweden, Switzerland, Thailand, United Arab Emirates and the United Kingdom.

 

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. Our infrastructure also allows us to provide convenient ordering and rapid, accurate and complete order fulfillment.

 

While our primary go-to-market strategy is in our capacity as a distributor, we also manufacture certain dental specialty products and solutions in the areas of implants, orthodontics and endodontics. We have achieved scale in these global businesses primarily through acquisitions as manufacturers of these products typically do not utilize a distribution channel to serve customers.

 

We conduct our business through two reportable segments: (i) health care distribution and (ii) technology and value-added services. These segments offer different products and services to the same customer base.

 

The health care distribution reportable segment aggregates our global dental and medical operating segments. This segment 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 and vitamins. Our global dental business serves office-based dental practitioners, dental laboratories, schools and other institutions. Our global medical business serves office-based medical practitioners, ambulatory surgery centers, other alternate-care settings and other institutions.

 

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 financial services on a non-recourse basis, e-services, practice technology, network and hardware services, as well as consulting, and continuing education services for practitioners.

 

A key element to grow closer to our customers is our One Schein initiative, which is a unified go-to-market approach that enables practitioners to work synergistically with our supply chain, equipment sales and service and other value-added services, allowing our customers to leverage the combined value that we offer through a single program. Specifically, One Schein provides customers with streamlined access to our comprehensive offering of national brand products, our private label products, and proprietary specialty products and solutions (including implant, orthodontic and endodontic products). In addition, customers have access to a wide range of services, including software and other value-added services.

 

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

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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.

 

Our current and future results have been and could be impacted by the COVID-19 pandemic, the current economic environment and continued economic and public health uncertainty. Since the onset of the COVID-19 pandemic in early 2020, we have been carefully monitoring its impact on our global operations and have taken appropriate steps to minimize the risk to our employees. We have seen and expect to continue to see changes in demand trends for some of our products and services, supply chain challenges, and labor challenges, as rates of infection fluctuate, new strains or variants of COVID-19 emerge and spread, vaccine uptake and mandates increase, governments adapt their approaches to combatting the virus (including without limitation, vaccine mandates), and local conditions change across geographies. For example, vaccine mandates affecting our workforce, whether imposed through government regulations or contracts with governmental authorities or other customers, could potentially cause staffing shortages if employees choose not to comply as well as other consequences to our business or operations, managing and tracking vaccination status and ongoing testing for exempt employees could potentially increase our costs, as could addressing inconsistent federal and state COVID-19 mandates. As a result, we expect to see continued volatility through at least the duration of the pandemic.

 

Industry Consolidation

 

The health care products distribution industry, as it relates to office-based health care practitioners, is fragmented and diverse. The industry ranges from sole practitioners working out of 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 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 trend with regard to acquisitions and joint ventures has been to expand our role as a provider of products and services to the health care industry. This trend has resulted in our expansion into service areas that complement our existing operations and provide opportunities for us to develop synergies with, and thus strengthen, the acquired businesses.

 

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As industry consolidation continues, we believe that we are positioned to capitalize on this trend, as we believe we have the ability to support increased sales through our existing infrastructure, although 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 merger and joint venture or acquisition and intend to continue to seek opportunities to expand our role as a provider of products and services to the health care industry. There can be no assurance that we will be able to successfully pursue any such opportunity or consummate any such transaction, if pursued. If additional transactions are entered into or consummated, we would incur merger and/or acquisition-related costs, and there can be no assurance that the integration efforts associated with any such transaction would be successful. In response to the COVID-19 pandemic, we had taken a range of actions to preserve cash, including the temporary suspension of significant acquisition activity. During the second half of 2020, as global conditions improved, we resumed our acquisition strategy.

 

Aging Population and Other Market Influences

 

The health care products distribution industry continues to experience growth due to the aging population, increased health care awareness, the proliferation of medical technology and testing, new pharmacology treatments and expanded third-party insurance coverage, partially offset by the effects of unemployment on insurance coverage. In addition, the physician market continues to benefit from the shift of procedures and diagnostic testing from acute care settings to alternate-care sites, particularly physicians’ offices.

 

According to the U.S. Census Bureau’s International Data Base, in 2021 there were more than six and a half million Americans aged 85 years or older, the segment of the population most in need of long-term care and elder-care services. By the year 2050, that number is projected to nearly triple to approximately 19 million. The population aged 65 to 84 years is projected to increase by approximately 32% during the same time period.

 

As a result of these market dynamics, annual expenditures for health care services continue to increase in the United States. We believe that demand for our products and services will grow, while continuing to be impacted by current and future operating, economic and industry conditions. The Centers for Medicare and Medicaid Services, or CMS, published “National Health Expenditure Projections 2019-2028” indicating that total national health care spending reached approximately $3.8 trillion in 2019, or 17.7% of the nation’s gross domestic product, the benchmark measure for annual production of goods and services in the United States. Health care spending is projected to reach approximately $6.2 trillion in 2028, approximately 19.7% of the nation’s projected gross domestic product. The latest projections begin after the latest historical year (2018) and go through 2028. These projections do not take into account the impacts of COVID-19 because of the timing of the report and the highly uncertain nature of the pandemic.

 

Government

 

Certain of our businesses involve the distribution, importation, exportation, marketing and sale of, and third party payment for, pharmaceuticals and 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, and as part of our specialty home medical supply business that distributes and sells medical equipment and supplies directly to patients. The federal government and state governments have also increased enforcement activity in the health care sector, particularly in areas of fraud and abuse, anti-bribery and corruption, controlled substances handling, medical device regulations, and data privacy and security standards.

 

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. In addition, activities to control medical costs, including laws and regulations lowering reimbursement rates for pharmaceuticals, medical devices,

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and/or medical treatments or services, are ongoing. Many of these laws and regulations are subject to change and their evolving implementation may impact our operations and our financial performance.

 

Our businesses are also generally subject to numerous other laws and regulations that could impact our financial performance, including securities, antitrust, consumer protection, anti-bribery and anti-kickback, customer interaction transparency, data privacy, data security, government contracting, price gouging, and other laws and regulations.

 

Failure to comply with law 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, contained in our Annual Report on Form 10-K for the fiscal year ended December 26, 2020, filed on February 17, 2021.

 

Results of Operations

 

The following table summarizes the significant components of our operating results for the three and nine months ended September 25, 2021 and September 26, 2020 and cash flows for the nine months ended September 25, 2021 and September 26, 2020 (in thousands):

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

September 25,

 

September 26,

 

September 25,

 

September 26,

 

 

 

 

2021

 

2020

 

2021

 

2020

Operating results:

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

3,178,315

 

$

2,840,146

 

$

9,070,499

 

$

6,953,416

Cost of sales

 

 

2,266,170

 

 

2,085,878

 

 

6,377,752

 

 

4,998,868

 

Gross profit

 

 

912,145

 

 

754,268

 

 

2,692,747

 

 

1,954,548

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

701,499

 

 

559,605

 

 

2,038,292

 

 

1,572,732

 

Restructuring costs (credits)

 

 

(175)

 

 

6,992

 

 

3,360

 

 

27,713

 

 

Operating income

 

$

210,821

 

$

187,671

 

$

651,095

 

$

354,103

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other expense, net

 

$

(4,738)

 

$

(10,516)

 

$

(13,596)

 

$

(24,138)

Gain on sale of equity investment

 

 

7,318

 

 

-

 

 

7,318

 

 

-

Net income from continuing operations

 

 

169,474

 

 

151,813

 

 

508,379

 

 

271,808

Income (loss) from discontinued operations

 

 

-

 

 

(29)

 

 

-

 

 

274

Net income attributable to Henry Schein, Inc.

 

 

162,286

 

 

141,697

 

 

483,999

 

 

261,161

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

 

September 25,

 

September 26,

 

 

 

 

 

 

 

 

 

 

2021

 

2020

Cash flows:

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities from continuing operations

 

$

432,941

 

$

248,414

Net cash used in investing activities from continuing operations

 

 

(479,001)

 

 

(93,956)

Net cash provided by (used in) financing activities from continuing operations

 

 

(254,473)

 

 

264,433

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Plans of Restructuring

 

On November 20, 2019, we committed to a contemplated restructuring initiative intended to mitigate stranded costs associated with the Animal Health Spin-off and to rationalize operations and to provide expense efficiencies. These activities were originally expected to be completed by the end of 2020. In light of the changes to the business environment brought on by the COVID-19 pandemic, we extended such activities to the end of 2021.

 

During the three months ended September 25, 2021 and September 26, 2020, we recorded restructuring costs (credits) of $(0.2) million and $7.0 million. During the nine months ended September 25, 2021 and September 26, 2020, we recorded restructuring costs of $3.4 million and $27.7 million. The restructuring costs (credits) for these periods included costs (credits) for severance benefits and facility exit costs. The costs (credits) associated with these restructurings are included in a separate line item, “Restructuring costs (credits)” within our consolidated statements of income.

 

We are currently unable in good faith to make a determination of an estimate of the amount or range of amounts expected to be incurred in connection with these activities in 2021, both with respect to each major type of cost associated therewith and with respect to the total cost, or an estimate of the amount or range of amounts that will result in future cash expenditures.

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Table of Contents

 

Three Months Ended September 25, 2021 Compared to Three Months Ended September 26, 2020

 

Net Sales

 

Net sales were as follows (in thousands):

 

 

 

 

 

September 25,

 

% of

 

September 26,

 

% of

 

Increase / (Decrease)

 

 

 

 

2021

 

Total

 

2020

 

Total

 

$

 

%

Health care distribution (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dental

 

$

1,822,894

 

57.4

%

 

$

1,649,853

 

58.1

%

 

$

173,041

 

10.5

%

 

Medical

 

 

1,186,812

 

37.3

 

 

 

1,027,146

 

36.2

 

 

 

159,666

 

15.5

 

 

 

Total health care distribution

 

 

3,009,706

 

94.7

 

 

 

2,676,999

 

94.3

 

 

 

332,707

 

12.4

 

Technology and value-added services (2)

 

 

168,609

 

5.3

 

 

 

138,355

 

4.9

 

 

 

30,254

 

21.9

 

 

 

Total excluding Corporate TSA revenue

 

 

3,178,315

 

100.0

 

 

 

2,815,354

 

99.2

 

 

 

362,961

 

12.9

 

Corporate TSA revenue (3)

 

 

-

 

-

 

 

 

24,792

 

0.8

 

 

 

(24,792)

 

-

 

 

 

Total

 

$

3,178,315

 

100.0

%

 

$

2,840,146

 

100.0

%

 

$

338,169

 

11.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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, and financial services on a non-recourse basis, e-services, continuing education services for practitioners, consulting and other services.

(3) Corporate TSA revenues represents sales of certain products to Covetrus under the transition services agreement entered into in connection with the Animal Health Spin-off, which ended in December 2020. See Note-18 Related Party Transactions for further information.

The 11.9% increase in net sales includes an increase of 11.1% in local currency revenue (7.2% increase in internally generated revenue and 3.9% growth from acquisitions) and an increase of 0.8% related to foreign currency exchange. During December 2020, our previous transition services agreement (TSA) with Covetrus, in connection with the completion of the Animal-Health Spin-off, concluded. Accordingly, we recorded no Corporate TSA revenues for the three months ended September 25, 2021. We estimate that sales of PPE and COVID-19 related products were approximately $494.5 million, an increase of 19.7% versus the prior year. Excluding PPE and COVID-19 related products, the estimated increase in internally generated local currency sales excluding Corporate TSA revenue was 7.4%.

 

The 10.5% increase in dental net sales includes an increase of 9.1% in local currency revenue (5.2% increase in internally generated revenue and 3.9% growth from acquisitions) and an increase of 1.4% related to foreign currency exchange. The 9.1% increase in local currency sales was attributable to an increase in dental consumable merchandise sales of 7.6% (2.9% increase in internally generated revenue and 4.7% growth from acquisitions) and an increase in dental equipment sales and service revenues of 14.6% (13.9% increase in internally generated revenue and 0.7% growth from acquisitions). We estimate that our dental business recorded sales of approximately $169.2 million of PPE and COVID-19 related products, an estimated increase of 6.2% versus the prior year. Excluding PPE and COVID-19 related products, the estimated increase in internally generated local currency dental sales was 6.9%.

 

The 15.5% increase in medical net sales is attributable to a 13.1% increase in internally generated revenue and 2.4% growth from acquisitions. We estimate that our medical business recorded sales of approximately $325.2 million of PPE and other COVID-19 related products for the three months ended September 25, 2021, an estimated increase of 28.2% compared to the prior year. Excluding sales of PPE and other COVID-19 related products, the estimated increase in internally generated local currency medical sales was 8.3%.

 

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The 21.9% increase in technology and value-added services net sales includes an increase of 21.0% local currency revenue (6.3% increase in internally generated revenue and 14.7% growth from acquisitions) and an increase of 0.9% related to foreign currency exchange. Sales growth was driven by our practice management business, as well as strong financial services revenue, which benefited from dental equipment sales growth. During the quarter ended September 25, 2021, the trend for transactional software revenues improved compared to the prior year, as more patients visited dental practices worldwide. Net sales in the prior year were adversely affected by the COVID-19 pandemic, which significantly impacted transactional software revenues.

 

Gross Profit

 

Gross profit and gross margin percentages by segment and in total were as follows (in thousands):

 

 

 

 

September 25,

 

Gross

 

September 26,

 

Gross

 

Increase / (Decrease)

 

 

 

2021

 

Margin %

 

2020

 

Margin %

 

$

 

%

Health care distribution

 

$

800,516

 

26.6

%

 

$

653,173

 

24.4

%

 

$

147,343

 

22.6

%

Technology and value-added services

 

 

111,629

 

66.2

 

 

 

100,272

 

72.5

 

 

 

11,357

 

11.3

 

 

Total excluding Corporate TSA revenues

 

 

912,145

 

28.7

 

 

 

753,445

 

26.8

 

 

 

158,700

 

21.1

 

Corporate TSA revenues

 

 

-

 

-

 

 

 

823

 

3.3

 

 

 

(823)

 

-

 

 

Total

 

$

912,145

 

28.7

 

 

$

754,268

 

26.6

 

 

$

157,877

 

20.9

 

 

As a result of different practices of categorizing costs associated with distribution networks throughout our industry, our gross margins may not necessarily be comparable to other distribution companies. Additionally, we realize substantially higher gross margin percentages in our technology segment than in our health care distribution segment. These higher gross margins result from being both the developer and seller of software products and services, as well as certain financial services. The software industry typically realizes higher gross margins to recover investments in research and development.

 

During December 2020, our previous transition services agreement with Covetrus, in connection with the completion of the Animal-Health Spin-off, concluded. Under this agreement, Covetrus had agreed to purchase certain products from us at a mark-up that ranged from 3% to 6% of our product cost to cover handling costs.

 

Within our health care distribution segment, gross profit margins may vary from one period to the next. Changes in the mix of products sold as well as changes in our customer mix have been the most significant drivers affecting our gross profit margin. For example, sales of pharmaceutical products are generally at lower gross profit margins than other products. Conversely, sales of our private label products achieve gross profit margins that are higher than average. With respect to customer mix, sales to our large-group customers are typically completed at lower gross margins due to the higher volumes sold as opposed to the gross margin on sales to office-based practitioners, who normally purchase lower volumes at greater frequencies.

 

Health care distribution gross profit increased $147.3 million, or 22.6%, primarily due to the increase in net sales discussed above. Health care distribution gross profit margin increased primarily due to lower adjustments recorded for PPE inventory. Such adjustments to inventory may recur and adversely impact gross profit margins in future periods, although we do not expect further material inventory adjustments in 2021. The increase in health care distribution gross profit margin is also attributable to an increase in vendor rebates during the third quarter of 2021 due to increased purchase volumes. The overall increase in our health care distribution gross profit is attributable to an increase of $54.4 million from internally generated revenue, a $67.3 million increase in gross profit due to the increase in the gross margin rates and a $25.6 million increase in gross profit from acquisitions.

 

Technology and value-added services gross profit increased $11.4 million, or 11.3%, due to a $7.1 million increase in internally generated revenue and $11.1 million additional gross profit from acquisitions, partially offset by a decrease of $6.8 million from gross margin rates. Technology and value-added services gross profit margin decreased to 66.2% from 72.5% primarily due to lower gross margins of recently acquired companies in the business services sector and certain transactions with the U.S. federal government.

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Selling, General and Administrative

 

Selling, general and administrative expenses by segment and in total were as follows (in thousands):

 

 

 

 

 

 

 

% of

 

 

 

 

% of

 

 

 

 

 

 

 

 

 

September 25,

 

Respective

 

September 26,

 

Respective

 

Increase

 

 

 

2021

 

Net Sales

 

2020

 

Net Sales

 

$

 

%

Health care distribution

 

$

621,241

 

20.6

%

 

$

505,338

 

18.9

%

 

$

115,903

 

22.9

%

Technology and value-added services

 

 

80,083

 

47.5

 

 

 

61,259

 

44.3

 

 

 

18,824

 

30.7

 

 

Total

 

$

701,324

 

22.1

 

 

$

566,597

 

19.9

 

 

$

134,727

 

23.8

 

 

Selling, general and administrative expenses (including restructuring credits in the three months ended September 25, 2021 and restructuring costs in the three months ended September 26, 2020) increased $134.7 million, or 23.8%. In the prior year, there were significant cost-saving measures taken in response to the COVID-19 pandemic. These cost-saving measures were temporary and ended during the third quarter of 2020.

 

The $115.9 million increase in selling, general and administrative expenses within our health care distribution segment was attributable to an increase of $96.7 million of operating costs and an increase of $26.1 million of additional costs from acquired companies, partially offset by a decrease of $6.9 million in restructuring costs. The $18.8 million increase in selling, general and administrative expenses within our technology and value-added services segment was attributable to an increase of $9.2 million of operating costs and an increase of $9.8 million of additional costs from acquired companies, partially offset by a decrease of $0.2 million in restructuring costs.

 

As a component of total selling, general and administrative expenses, selling expenses increased $67.7 million, or 19.7% to $411.2 million primarily due to an increase in payroll and payroll related costs. As a percentage of net sales, selling expenses increased to 13.0% from 12.1%.

 

As a component of total selling, general and administrative expenses, general and administrative expenses increased $67.0 million, or 30.0% to $290.1 million primarily due to an increase in payroll and payroll related costs. As a percentage of net sales, general and administrative expenses increased to 9.1% from 7.8%.

 

Other Expense, Net

 

Other expense, net, was as follows (in thousands):

 

 

 

 

September 25,

 

September 26,

 

Variance

 

 

 

2021

 

2020

 

$

 

%

Interest income

 

$

1,409

 

$

2,294

 

$

(885)

 

(38.6)

%

Interest expense

 

 

(6,550)

 

 

(11,111)

 

 

4,561

 

41.0

 

Other, net

 

 

403

 

 

(1,699)

 

 

2,102

 

123.7

 

 

Other expense, net

 

$

(4,738)

 

$

(10,516)

 

$

5,778

 

54.9

 

 

Interest income decreased $0.9 million primarily due to lower interest rates and reduced late fee income. Interest expense decreased $4.6 million primarily due to reduced credit line borrowings.

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Table of Contents

 

Income Taxes

 

For the three months ended September 25, 2021, our effective tax rate was 23.9% compared to 16.4% for the prior year period. The difference between our effective tax rate and the federal statutory tax rate for the three months ended September 25, 2021 was primarily due to state and foreign taxes, interest expense and tax charges and credits associated with legal entity reorganizations. The difference between our effective tax rate and the federal statutory tax rate for the three months ended September 26, 2020 was primarily due to a U.S federal income tax settlement, reached during the third quarter of 2020, which lowered income tax expense by approximately $15.6 million, as well as state and foreign income taxes and interest expense.

 

Gain on Sale of Equity Investment

 

In the third quarter of 2021 we received contingent proceeds of $9.8 million from the 2019 sale of Hu-Friedy resulting in the recognition of an additional after-tax gain of $7.3 million.

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Table of Contents

 

Nine Months Ended September 25, 2021 Compared to Nine Months Ended September 26, 2020

 

Net Sales

 

Net sales were as follows (in thousands):

 

 

 

 

 

September 25,

 

% of

 

September 26,

 

% of

 

Increase/(Decrease)

 

 

 

 

2021

 

Total

 

2020

 

Total

 

$

 

%

Health care distribution (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dental

 

$

5,522,166

 

60.9

%

 

$

4,066,221

 

58.5

%

 

$

1,455,945

 

35.8

%

 

Medical

 

 

3,084,677

 

34.0

 

 

 

2,445,644

 

35.2

 

 

 

639,033

 

26.1

 

 

 

Total health care distribution

 

 

8,606,843

 

94.9

 

 

 

6,511,865

 

93.7

 

 

 

2,094,978

 

32.2

 

Technology and value-added services (2)

 

 

463,656

 

5.1

 

 

 

375,547

 

5.4

 

 

 

88,109

 

23.5

 

 

 

Total excluding Corporate TSA revenue

 

 

9,070,499

 

100.0

 

 

 

6,887,412

 

99.1

 

 

 

2,183,087

 

31.7

 

Corporate TSA revenue (3)

 

 

-

 

-

 

 

 

66,004

 

0.9

 

 

 

(66,004)

 

-

 

 

 

Total

 

$

9,070,499

 

100.0

%

 

$

6,953,416

 

100.0

%

 

$

2,117,083

 

30.4

 

 

(1) Consists of consumable products, small equipment, laboratory products, large equipment, equipment repair services, branded and generic pharmaceuticals, vaccines, surgical products, dental specialty products (including implant, orthodontic and endodontic products), diagnostic tests, infection-control products, PPE and vitamins.

(2) Consists of practice management software and other value-added products, which are distributed primarily to health care providers, and financial services on a non-recourse basis, e-services, continuing education services for practitioners, consulting and other services.

(3) Corporate TSA revenues represents sales of certain products to Covetrus under the transition services agreement entered into in connection with the Animal Health Spin-off, which ended in December 2020. See Note-18 Related Party Transactions for further information.

The 30.4% increase in net sales includes an increase of 28.1% in local currency revenue (24.0% increase in internally generated revenue and 4.1% growth from acquisitions) and an increase of 2.3% related to foreign currency exchange. Excluding sales of products under the transition services agreement with Covetrus, our net sales increased 31.7%, including an increase in local currency revenue of 29.3% (25.2% increase in internally generated revenue and 4.1% growth from acquisitions) and an increase of 2.4% related to foreign currency exchange. We estimate that sales for the nine months ended September 25, 2021 of PPE and COVID-19 related products were approximately $1,304.0 million, an estimated increase of 68.9% versus the prior year. Excluding PPE and COVID-19 related products, the estimated increase in internally generated local currency sales excluding Corporate TSA revenues was 21.3%.

 

The 35.8% increase in dental net sales includes an increase of 32.0% in local currency revenue (27.2% increase in internally generated revenue and 4.8% growth from acquisitions) and an increase of 3.8% related to foreign currency exchange. The 32.0% increase in local currency sales was attributable to an increase in dental consumable merchandise revenue of 32.4% (26.5% increase in internally generated revenue and 5.9% growth from acquisitions), and an increase in dental equipment sales and service revenues of 30.5% (29.8% increase in internally generated revenue and 0.7% growth from acquisitions). The COVID-19 pandemic began to adversely impact our worldwide dental revenue beginning in mid-March of 2020 as many dental offices progressively closed or began seeing a limited number of patients. However, in the second half of the quarter ended June 27, 2020 and continuing through the quarter ended September 26, 2020, patient traffic began to stabilize and approached pre-pandemic levels. The growth in dental revenues reflects this recovery. Additionally, we estimate that global dental sales for the nine months ended September 25, 2021 of PPE and COVID-19 related products were approximately $520.3 million, an estimated increase of 46.8% versus the prior year. Excluding PPE and COVID-19 related products, the estimated increase in internally generated local currency dental sales was 27.9%.

 

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Table of Contents

 

The 26.1% increase in medical net sales is attributable to an increase of 25.9% in local currency growth (23.7% increase in internally generated revenue and 2.2% growth from acquisitions) and an increase of 0.2% related to foreign currency exchange. Economic conditions relating to the COVID-19 pandemic have had less of an impact on the performance of our medical group versus dental, in part due to continued strong sales of PPE, such as masks, gowns and face shields, and other COVID-19 related products, such as diagnostic test kits. Globally, we estimate our medical business recorded sales of approximately $783.8 million sales of such PPE and other COVID-19 related products for the nine months ended September 25, 2021, an increase of approximately 87.6% compared to the prior year. Excluding PPE and other COVID-19 related products, the estimated increase in internally generated local currency medical sales was 10.7%.

 

The 23.5% increase in technology and value-added services net sales is attributable to an increase of 21.9% in local currency revenue (12.9% increase in internally generated revenue and 9.0% growth from acquisitions) and 1.6% related to foreign currency exchange. Sales growth was driven by our practice management business, as well as strong financial services revenue, which benefitted from dental equipment sales growth.

 

Gross Profit

 

Gross profit and gross margin percentages by segment and in total were as follows (in thousands):

 

 

 

 

September 25,

 

Gross

 

September 26,

 

Gross

 

Increase/(Decrease)

 

 

 

2021

 

Margin %

 

2020

 

Margin %

 

$

 

%

Health care distribution

 

$

2,375,341

 

27.6

%

 

$

1,687,531

 

25.9

%

 

$

687,810

 

40.8

%

Technology and value-added services

 

 

317,406

 

68.5

 

 

 

265,040

 

70.6

 

 

 

52,366

 

19.8

 

 

Total excluding Corporate TSA revenues

 

 

2,692,747

 

29.7

 

 

 

1,952,571

 

28.3

 

 

 

740,176

 

37.9

 

Corporate TSA revenues

 

 

-

 

-

 

 

 

1,977

 

3.0

 

 

 

(1,977)

 

-

 

 

Total

 

$

2,692,747

 

29.7

 

 

$

1,954,548

 

28.1

 

 

$

738,199

 

37.8

 

 

As a result of different practices of categorizing costs associated with distribution networks throughout our industry, our gross margins may not necessarily be comparable to other distribution companies. Additionally, we realize substantially higher gross margin percentages in our technology and value-added services segment than in our health care distribution segment. These higher gross margins result from being both the developer and seller of software products and services, as well as certain financial services. The software industry typically realizes higher gross margins to recover investments in research and development.

 

During December 2020, our previous transition services agreement with Covetrus, in connection with the completion of the Animal-Health Spin-off, concluded. Under this agreement, Covetrus had agreed to purchase certain products from us at a mark-up that ranged from 3% to 6% of our product cost to cover handling costs.

 

Within our health care distribution segment, gross profit margins may vary from one period to the next. Changes in the mix of products sold as well as changes in our customer mix have been the most significant drivers affecting our gross profit margin. For example, sales of our private label products achieve gross profit margins that are higher than average. With respect to customer mix, sales to our large-group customers are typically completed at lower gross margins due to the higher volumes sold as opposed to the gross margin on sales to office-based practitioners, who normally purchase lower volumes at greater frequencies.

 

Health care distribution gross profit increased $687.8 million, or 40.8% primarily due to the increase in net sales discussed above. Health care distribution gross profit margin increased to 27.6% from 25.9% primarily due to lower adjustments recorded for PPE inventory. Such adjustments to inventory may recur and adversely impact gross profit margins in future periods, although we do not expect further material inventory adjustments in 2021. The increase in the health care distribution gross profit margin is also attributable to an increase in vendor rebates during the first nine months of 2021 due to increased purchase volumes. The overall increase in our health care distribution gross profit is attributable to a $489.2 million increase in internally generated revenue, $119.1 million in gross profit due to the increase in the gross margin rates and $79.5 million additional gross profit from acquisitions.

 

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Table of Contents

 

Technology and value-added services gross profit increased $52.4 million, or 19.8%, attributable to an increase of $37.8 million in internally generated revenue and $22.1 million additional gross profit from acquisitions, partially offset by a $7.5 million decrease in gross profit. Technology and value-added services gross profit margin decreased to 68.5% from 70.6% primarily due to lower gross margins of recently acquired companies in the business services sector and certain transactions with the U.S. federal government.

 

Selling, General and Administrative

 

Selling, general and administrative expenses by segment and in total were as follows (in thousands):

 

 

 

 

 

 

% of

 

 

 

 

% of

 

 

 

 

 

 

 

 

 

September 25,

 

Respective

 

September 26,

 

Respective

 

Increase

 

 

 

2021

 

Net Sales

 

2020

 

Net Sales

 

$

 

%

Health care distribution

 

$

1,816,373

 

21.1

%

 

$

1,418,031

 

21.8

%

 

$

398,342

 

28.1

%

Technology and value-added services

 

 

225,279

 

48.6

 

 

 

182,414

 

48.6

 

 

 

42,865

 

23.5

 

 

Total

 

$

2,041,652

 

22.5

 

 

$

1,600,445

 

23.0

 

 

$

441,207

 

27.6

 

 

Selling, general and administrative expenses (including restructuring costs) increased $441.2 million, or 27.6%. In the prior year, there were significant cost-saving measures taken in response to the COVID-19 pandemic. These cost-saving measures were temporary and ended during the third quarter of 2020.

 

The $398.3 million increase in selling, general and administrative expenses within our health care distribution segment was attributable to an increase of $349.8 million of operating costs and an increase of $72.3 million of additional costs from acquired companies, partially offset by a decrease of $23.8 million in restructuring costs. The $42.9 million increase in selling, general and administrative expenses within our technology and value-added services segment was attributable to an increase of $24.5 million of operating costs and an increase of $19.0 million of additional costs from acquired companies, partially offset by a decrease of $0.6 million in restructuring costs. As a percentage of net sales, selling, general and administrative expenses decreased to 22.5% from 23.0%.

 

As a component of total selling, general and administrative expenses, selling expenses increased $231.9 million, or 23.8% to $ 1,205.7 million, primarily due to an increase in payroll and payroll related costs. As a percentage of net sales, selling expenses decreased to 13.3% from 14.0%.

 

As a component of total selling, general and administrative expenses, general and administrative expenses increased $209.3 million, or 33.4% to $835.9 million, primarily due to an increase in payroll and payroll related costs. As a percentage of net sales, general and administrative expenses increased to 9.2% from 9.0%.

 

Other Expense, Net

 

Other expense, net, was as follows (in thousands):

 

 

 

 

September 25,

 

September 26,

 

Variance

 

 

 

2021

 

2020

 

$

 

%

Interest income

 

$

4,749

 

$

7,481

 

$

(2,732)

 

(36.5)

%

Interest expense

 

 

(19,411)

 

 

(29,409)

 

 

9,998

 

34.0

 

Other, net

 

 

1,066

 

 

(2,210)

 

 

3,276

 

148.2

 

 

Other expense, net

 

$

(13,596)

 

$

(24,138)

 

$

10,542

 

43.7

 

 

Interest income decreased $2.7 million primarily due to lower interest rates and reduced late fee income. Interest expense decreased $10.0 million primarily due to reduced credit line borrowings and lower interest rates on certain of our private placement borrowings.

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Table of Contents

 

Income Taxes

 

For the nine months ended September 25, 2021, our effective tax rate was 24.2% compared to 20.0% for the prior year period. The difference between our effective tax rate and the federal statutory tax rate for the nine months ended September 25, 2021 was primarily due to state and foreign income taxes, interest expense and tax charges and credits associated with legal entity reorganizations. The difference between our effective tax rate and the federal statutory tax rate for the nine months ended September 26, 2020 was primarily due to a U.S federal income tax settlement, reached during the third quarter of 2020, which lowered income tax expense by approximately $15.6 million, as well as state and foreign income taxes and interest expense.

 

Gain on Sale of Equity Investment

 

In the third quarter of 2021 we received contingent proceeds of $9.8 million from the 2019 sale of Hu-Friedy resulting in the recognition of an additional after-tax gain of $7.3 million.

 

 

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Liquidity and Capital Resources

 

Our principal capital requirements have included funding of acquisitions, purchases of additional noncontrolling interests, repayments of debt principal, the funding of working capital needs, purchases of fixed assets and repurchases of common stock (which had been temporarily suspended in March of 2020, but were resumed during the three months ended March 27, 2021). Working capital requirements generally result from increased sales, special inventory forward buy-in opportunities and payment terms for receivables and payables. Historically, sales have tended to be stronger during the second half of the year and special inventory forward buy-in opportunities have been most prevalent just before the end of the year, and have caused our working capital requirements to be higher from the end of the third quarter to the end of the first quarter of the following year.

 

The pandemic and the governmental responses to it had a material adverse effect on our cash flows in the second quarter of 2020. In the latter half of the second quarter of 2020 and continuing through year-end, dental and medical practices began to re-open worldwide. During the first nine months of 2021, patient traffic levels returned to levels approaching pre-pandemic levels. There is an ongoing risk that the COVID-19 pandemic may again have a material adverse effect on our business, results of operations and cash flows and may result in a material adverse effect on our financial condition and liquidity. However, the extent of the potential impact cannot be reasonably estimated at this time.

 

We finance our business primarily through cash generated from our operations, revolving credit facilities and debt placements. 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. We have no off-balance sheet arrangements.

 

Net cash from continuing operations provided by operating activities was $432.9 million for the nine months ended September 25, 2021, compared to net cash from continuing operations provided by operating activities of $248.4 million for the comparable prior year period. The net change of $184.5 million was primarily attributable to higher net income, partially offset by increased working capital requirements, specifically an increase in inventories due to ongoing stocking of PPE and COVID-19 related products, and reduced accounts payable and accrued expenses. These working capital increases were partially offset by lower growth in accounts receivable as days sales outstanding were lower than in the prior year.

 

Net cash from continuing operations used in investing activities was $479.0 million for the nine months ended September 25, 2021, compared to $94.0 million for the comparable prior year period. The net change of $385.0 million was attributable to increased payments for equity investments and business acquisitions.

 

Net cash from continuing operations used in financing activities was $254.5 million for the nine months ended September 25, 2021, compared to net cash provided by financing activities of $264.4 million for the comparable prior year period. The net change of $518.9 million was primarily due to decreased net proceeds from bank borrowings and increased repurchases of common stock.

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The following table summarizes selected measures of liquidity and capital resources (in thousands):

 

 

 

 

 

September 25,

 

December 26,

 

 

 

 

2021

 

2020

Cash and cash equivalents

 

$

119,133

 

$

421,185

Working capital (1)

 

 

1,610,956

 

 

1,508,313

 

 

 

 

 

 

 

 

 

Debt:

 

 

 

 

 

 

 

Bank credit lines

 

$

59,394

 

$

73,366

 

Current maturities of long-term debt

 

 

9,638

 

 

109,836

 

Long-term debt

 

 

705,540

 

 

515,773

 

 

Total debt

 

$

774,572

 

$

698,975

 

 

 

 

 

 

 

 

 

Leases:

 

 

 

 

 

 

 

Current operating lease liabilities

 

$

77,383

 

$

64,716

 

Non-current operating lease liabilities

 

 

270,152

 

 

238,727

 

 

 

 

 

 

 

 

 

(1)

At September 25, 2021 and December 26, 2020, there were no trade accounts receivable that were restricted to settle obligations of this VIE, nor were there liabilities of the VIE where the creditors have recourse to us.

 

Our cash and cash equivalents consist of bank balances and investments in money market funds representing overnight investments with a high degree of liquidity.

 

Accounts receivable days sales outstanding and inventory turns

 

Our accounts receivable days sales outstanding from operations decreased to 42.6 days as of September 25, 2021 from 48.8 days as of September 26, 2020. During the nine months ended September 25, 2021, we wrote off approximately $5.6 million of fully reserved accounts receivable against our trade receivable reserve. Our inventory turns from operations increased to 5.1 as of September 25, 2021 from 4.7 as of September 26, 2020. Our working capital accounts may be impacted by current and future economic conditions.

Bank Credit Lines

 

Bank credit lines consisted of the following:

 

 

 

 

September 25,

 

December 26,

 

 

 

2021

 

2020

Revolving credit agreement

 

$

-

 

$

-

Other short-term bank credit lines

 

 

59,394

 

 

73,366

Total

 

$

59,394

 

$

73,366

 

Revolving Credit Agreement

 

On August 20, 2021, we entered into a new $1 billion revolving credit agreement (the “Credit Agreement”). This facility, which matures on August 20, 2026, replaced our $750 million revolving credit facility, which was scheduled 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. We expect most LIBOR rates to be discontinued immediately after December 31, 2021, while the remaining LIBOR rates will be discontinued immediately after June 30, 2023. We do not expect the discontinuation of LIBOR as a reference rate in our debt agreements to have a material adverse effect on our financial position or to materially affect our interest expense. The Credit Agreement 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 September 25, 2021, and December 26, 2020, we had no borrowings under this revolving credit facility. As of September 25, 2021, and December 26, 2020, there were $9.1 million and $9.5 million of letters of credit, respectively, provided to third parties under the credit facility.

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On April 17, 2020, we amended the Credit Agreement to, among other things, (i) modify the financial covenant from being based on total leverage ratio to net leverage ratio, (ii) adjust the pricing grid to reflect the net leverage ratio calculation, and (iii) increase the maximum maintenance leverage ratio through March 31, 2021.

 

364-Day Credit Agreement

 

On March 4, 2021, we repaid the outstanding obligations and terminated the lender commitments under our $700 million 364-day credit agreement, which was entered into on April 17, 2020. This facility was originally scheduled to mature on April 16, 2021.

 

Other Short-Term Credit Lines

 

As of September 25, 2021 and December 26, 2020, we had various other short-term bank credit lines available, of which $59.4 million and $73.4 million, respectively, were outstanding. At September 25, 2021 and December 26, 2020, borrowings under all of these credit lines had a weighted average interest rate of 7.42% and 4.14%, respectively.

 

Long-term debt

 

Long-term debt consisted of the following:

 

 

 

 

September 25,

 

December 26,

 

 

 

2021

 

2020

Private placement facilities

 

$

706,433

 

$

613,498

Note payable

 

 

-

 

 

1,554

Various collateralized and uncollateralized loans payable with interest,

 

 

 

 

 

 

 

in varying installments through 2023 at interest rates

 

 

 

 

 

 

 

ranging from 2.45% to 4.27% at September 25, 2021 and

 

 

 

 

 

 

 

ranging from 2.62% to 4.27% at December 26, 2020

 

 

3,566

 

 

4,596

Finance lease obligations (see Note 6)

 

 

5,179

 

 

5,961

 

Total

 

 

715,178

 

 

625,609

Less current maturities

 

 

(9,638)

 

 

(109,836)

 

Total long-term debt

 

$

705,540

 

$

515,773

 

Private Placement Facilities

 

Our private placement facilities, with three insurance companies, have a total facility amount of $1 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 June 23, 2023. The facilities allow us to issue senior promissory notes to the lenders at a fixed rate based on an agreed upon spread over applicable treasury notes at the time of issuance. The term of each possible issuance will be selected by us and can range from five to 15 years (with an average life no longer than 12 years). The proceeds of any issuances under the facilities will be used for general corporate purposes, including working capital and capital expenditures, to refinance existing indebtedness, and/or to fund potential acquisitions. The agreements provide, among other things, that we maintain certain maximum leverage ratios, and contain restrictions relating to subsidiary indebtedness, liens, affiliate transactions, disposal of assets and certain changes in ownership. These facilities contain make-whole provisions in the event that we pay off the facilities prior to the applicable due dates.

 

On March 5, 2021, we amended the private placement facilities to, among other things, (a) modify the financial covenant from being based on a net leverage ratio to a total leverage ratio and (b) restore the maximum maintenance total leverage ratio to 3.25x and remove the 1.00% interest rate increase triggered if the net leverage ratio were to exceed 3.0x.

 

On October 20, 2021, we amended our three private placement facilities with insurance companies and entered into a fourth private placement facility with another insurance company, increasing the total facilities amount to $1.5

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billion and extending the maturity date of the existing facilities. The maturity date for our private placement facilities is October 20, 2026.

 

The components of our private placement facility borrowings as of September 25, 2021 are presented in the following table (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

Amount of

 

 

 

 

 

 

 

Borrowing

 

Borrowing

 

 

Date of Borrowing

 

Outstanding

 

Rate

 

Due Date

January 20, 2012 (1)

 

$

7,143

 

3.09

%

 

January 20, 2022

January 20, 2012

 

 

50,000

 

3.45

 

 

January 20, 2024

December 24, 2012

 

 

50,000

 

3.00

 

 

December 24, 2024

June 16, 2017

 

 

100,000

 

3.42

 

 

June 16, 2027

September 15, 2017

 

 

100,000

 

3.52

 

 

September 15, 2029

January 2, 2018

 

 

100,000

 

3.32

 

 

January 2, 2028

September 2, 2020

 

 

100,000

 

2.35

 

 

September 2, 2030

June 2, 2021

 

 

100,000

 

2.48

 

 

June 2, 2031

June 2, 2021

 

 

100,000

 

2.58

 

 

June 2, 2033

Less: Deferred debt issuance costs

 

 

(710)

 

 

 

 

 

 

 

$

706,433

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Annual repayments of approximately $7.1 million for this borrowing commenced on January 20, 2016.

 

U.S. Trade Accounts Receivable Securitization

 

We have a facility agreement with a bank, as agent, based on the securitization of our U.S. trade accounts receivable that is structured as an asset-backed securitization program with pricing committed for up to three years. Our current facility, which has a purchase limit of $350 million, was scheduled to expire on April 29, 2022. On June 22, 2020, the expiration date for this facility was extended to June 12, 2023 and was amended to adjust certain covenant levels for 2020. As of September 25, 2021 and December 26, 2020, there were no borrowings outstanding under this securitization facility. At September 25, 2021, the interest rate on borrowings under this facility was based on the asset-backed commercial paper rate of 0.13% plus 0.95%, for a combined rate of 1.08%. At December 26, 2020, the interest rate on borrowings under this facility was based on the asset-backed commercial paper rate of 0.22% plus 0.95%, for a combined rate of 1.17%.

 

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 25 to 45 basis points depending upon program utilization.

 

On October 20, 2021, we amended our U.S. trade accounts receivable securitization facility to increase the purchase limit to $450 million with two banks as agents and extend the expiration date to October 18, 2024.

 

Leases

 

We have operating and finance leases for corporate offices, office space, distribution and other facilities, vehicles, and certain equipment. Our leases have remaining terms of less than one year to approximately 20 years, some of which may include options to extend the leases for up to 10 years. As of September 25, 2021, our right-of-use assets related to operating leases were $329.9 million and our current and non-current operating lease liabilities were $77.4 million and $270.2 million, respectively.

 

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Stock Repurchases

 

On March 8, 2021, we announced the reinstatement of our share repurchase program.

 

From March 3, 2003 through September 25, 2021, we repurchased $3.9 billion, or 79,082,135 shares, under our common stock repurchase programs, with $350.0 million available as of September 25, 2021 for future common stock share repurchases.

 

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 nine months ended September 25, 2021 and the year ended December 26, 2020 are presented in the following table:

 

 

 

 

September 25,

 

December 26,

 

 

 

2021

 

2020

Balance, beginning of period

 

$

327,699

 

$

287,258

Decrease in redeemable noncontrolling interests due to

 

 

 

 

 

 

 

redemptions

 

 

(50,292)

 

 

(17,241)

Increase in redeemable noncontrolling interests due to business

 

 

 

 

 

 

 

acquisitions

 

 

189,870

 

 

28,387

Net income attributable to redeemable noncontrolling interests

 

 

19,770

 

 

13,363

Dividends declared

 

 

(13,959)

 

 

(12,631)

Effect of foreign currency translation loss attributable to

 

 

 

 

 

 

 

redeemable noncontrolling interests

 

 

(4,098)

 

 

(4,279)

Change in fair value of redeemable securities

 

 

143,592

 

 

32,842

Balance, end of period

 

$

612,582

 

$

327,699

 

Changes in the estimated redemption amounts of the noncontrolling interests subject to put options are adjusted at each reporting period with a corresponding adjustment to Additional paid-in capital. Future reductions in the carrying amounts are subject to a floor amount that is equal to the fair value of the redeemable noncontrolling interests at the time they were originally recorded. The recorded value of the redeemable noncontrolling interests cannot go below the floor level. These adjustments do not impact the calculation of earnings per share.

 

Additionally, some prior owners of such acquired subsidiaries are eligible to receive additional purchase price cash consideration if certain financial targets are met. Any adjustments to these accrual amounts are recorded in our consolidated statements of income. For the nine months ended September 25, 2021 and September 26, 2020, there were no material adjustments recorded in our consolidated statements of income relating to changes in estimated contingent purchase price liabilities.

 

Noncontrolling Interests

 

Noncontrolling interests represent our less than 50% ownership interest in an acquired subsidiary. Our net income is reduced by the portion of the subsidiaries net income that is attributable to noncontrolling interests.

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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 26, 2020, except accounting policies adopted as of December 27, 2020, which are discussed in Note 2-Critical Accounting Policies, Accounting Pronouncements Adopted and Recently Issued Accounting Standards of the Notes to the Consolidated Financial Statements included under Item 1.

 

Our financial results for the nine months ended September 26, 2020 were affected by certain estimates we made due to the adverse business environment brought on by the COVID-19 pandemic. For example, in the quarter ended March 28, 2020 we recorded incremental bad debt reserves of approximately $10.0 million for our global dental business. During the quarter ended March 28, 2020, we also recognized a net credit of approximately $17.5 million in stock-based compensation expense due to our estimate that no performance shares granted in 2018, 2019 or 2020 would ultimately vest. For the quarter ended June 27, 2020, we continued to estimate that no such performance-based shares would ultimately vest. In contrast, for the nine months ended September 25, 2021, we recorded $57.7 million in stock-based compensation. Additionally, in the quarter ended March 28, 2020, we recorded total impairment charges of approximately $6.1 million related to prepaid royalty expenses and a customer relationship intangible asset. We had no material impairment charges in the quarter ended September 25, 2021. Although our selling, general and administrative expenses for the nine months ended September 25, 2021 represent management's best estimates and assumptions that affect the reported amounts, our judgment could change in the future due to the significant uncertainty surrounding the macroeconomic effect of the COVID-19 pandemic.

 

Accounting Standards Update

 

For a discussion of accounting standards updates that have been adopted or will be adopted, see Note 2-Critical Accounting Policies, Accounting Pronouncements Adopted and Recently Issued Accounting Standards of the Notes to the 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 26, 2020.

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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 September 25, 2021, to ensure that all material information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to them as appropriate to allow timely decisions regarding required disclosure and that all such information is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

 

Changes in Internal Control over Financial Reporting

 

The combination of acquisitions, continued acquisition integrations and systems integrations undertaken during the quarter and carried over from prior quarters, as well as changes to the operating methods of some of our internal controls over financial reporting due to the COVID-19 pandemic, when considered in the aggregate, represents a material change in our internal control over financial reporting.

 

During the quarter ended September 25, 2021, we completed acquisitions of medical and dental businesses with combined aggregate annual revenues of approximately $165 million. In addition, post-acquisition integration related activities continued for our medical and dental businesses acquired during prior quarters, representing aggregate annual revenues of approximately $280 million. These acquisitions, the majority of which utilize separate information and financial accounting systems, have been included in our consolidated financial statements since their respective dates of acquisition.

 

Also, during the quarter ended September 25, 2021, we completed systems integration activities to migrate existing systems to a new data center supporting certain dental and medical businesses in Germany, Italy, Austria, and Benelux representing aggregate projected annual revenues of approximately $970 million.

 

All acquisitions, continued acquisition integrations, and system integrations involve necessary and appropriate change-management controls that are considered in our quarterly assessment of the design and operating effectiveness of our internal control over financial reporting.

 

In addition, as a result of a combination of continued governmental imposed and Company directed closures of some of our facilities due to the COVID-19 pandemic, we have had to maintain a number of changes to the operating methods of some of our internal controls. For example, moving from manual sign-offs and in-person meetings to electronic sign-offs and electronic communications such as email and telephonic or video conference due to out-of-office working arrangements. However, the design of our internal control framework and objectives over financial reporting remains unchanged and we do not believe that these changes have materially affected, or are reasonably likely to materially affect, the effectiveness of our internal control over financial reporting.

 

Limitations of the Effectiveness of Internal Control

 

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the internal control system are met. Because of the inherent limitations of any internal control system, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.

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PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

For a discussion of Legal Proceedings, see Note 17–Legal Proceedings of the Notes to the 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 26, 2020.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Purchases of equity securities by the issuer

 

Our share repurchase program announced on March 3, 2003, originally allowed us to repurchase up to two million shares pre-stock splits (eight million shares post-stock splits) of our common stock, which represented approximately 2.3% of the shares outstanding at the commencement of the program. Subsequent additional increases totaling $3.7 billion, authorized by our Board of Directors, to the repurchase program provide for a total of $3.8 billion of shares of our common stock to be repurchased under this program.

 

On March 8, 2021, we announced the reinstatement of our share repurchase program.

 

As of September 25, 2021, we had repurchased approximately $3.9 billion of common stock (79,082,135 shares) under these initiatives, with $350.0 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 September 25, 2021.

 

 

 

 

 

 

 

 

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)

6/27/21 through 7/31/2021

 

370,000

 

$

76.47

 

370,000

 

4,637,640

8/1/21 through 8/28/2021

 

281,289

 

 

77.17

 

281,289

 

4,652,401

8/29/21 through 9/25/2021

 

-

 

 

-

 

-

 

4,481,436

 

 

651,289

 

 

 

 

651,289

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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.

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ITEM 6. EXHIBITS

 

 

4.1

Multicurrency Private Shelf Agreement, dated as of October 20, 2021, by and among us, AIG Asset Management (U.S.), LLC and each AIG affiliate which becomes party thereto (Incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed on October 21, 2021.)

 

4.2

Third Amended and Restated Multicurrency Private Shelf Agreement, dated as of October 20, 2021, by and among us, PGIM, Inc. and each Prudential affiliate which becomes party thereto (Incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K filed on October 21, 2021.)

 

4.3

Third Amended and Restated Master Note Facility, dated as of October 20, 2021, by and among us, NYL Investors LLC and each New York Life affiliate which becomes party thereto (Incorporated by reference to Exhibit 4.3 to our Current Report on Form 8-K filed on October 21, 2021.)

 

4.4

Third Amended and Restated Multicurrency Master Note Purchase Agreement, dated as of October 20, 2021, by and among us, Metropolitan Life Insurance Company, MetLife Investment Management, LLC and each MetLife affiliate which becomes party thereto (Incorporated by reference to Exhibit 4.4 to our Current Report on Form 8-K filed on October 21, 2021.)

 

10.1

Amended and Restated Revolving Credit Agreement, dated as of August 20, 2021, among us, the several lenders parties thereto, and JPMorgan Chase Bank, N.A., as administrative agent. (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on August 23, 2021.)

 

10.2

Amendment No. 7 to Receivables Purchase Agreement, dated as of October 20, 2021, by and among us, as servicer, HSFR, Inc., as seller, Lender, as agent and the various purchaser groups from time to time party thereto (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on October 21, 2021.)

 

31.1

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.+

 

31.2

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.+

 

32.1

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.+

 

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 September 25, 2021, formatted in Inline XBRL (included within Exhibit 101 attachments).+

+ Filed or furnished herewith.

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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/ Steven Paladino

 

Steven Paladino

 

Executive Vice President and

 

Chief Financial Officer

 

(Authorized Signatory and Principal Financial

 

and Accounting Officer)

 

Dated: November 2, 2021

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