10-Q 1 the10q_3q18.htm THE 3Q18 QUARTERLY 10-Q REPORT UNITED STATES

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

 

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

 

For the quarterly period ended September 29, 2018

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)

 

           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 X  

 

No  __

 

           Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)  during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

Yes X  

 

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 X  

 

 

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 29, 2018there were 152,437,680 shares of the registrant’s common stock outstanding.

 

 

 

 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HENRY SCHEIN, INC.

INDEX

 

 

 

 

 

 

Page

 

 

 

 

 

 

 

PART I.  FINANCIAL INFORMATION

 

 

 

 

 

 

 

ITEM 1.

 

Consolidated Financial Statements:

 

 

 

 

 

 

 

 

 

 

 

Balance Sheets as of September 29, 2018 and December 30, 2017  ............................................................................................................................................

3

 

 

 

 

 

 

 

 

 

 

Statements of Income for the three and nine months ended

 

 

 

 

 

September 29, 2018 and September 30, 2017  .......................................................................................................................................................................

4

 

 

 

 

 

 

 

 

 

 

Statements of Comprehensive Income for the three and nine months ended

 

 

 

 

 

September 29, 2018 and September 30, 2017  .......................................................................................................................................................................

5

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

September 29, 2018  ...............................................................................................................................................................................................................

6

 

 

 

 

 

 

 

 

 

 

Statements of Cash Flows for the nine months ended

 

 

 

 

 

September 29, 2018 and September 30, 2017  .......................................................................................................................................................................

7

 

 

 

 

 

 

 

 

 

 

 Notes to Consolidated Financial Statements ................................................................................................................................................................................

8

 

 

 

      Note 1 - Basis of Presentation  ...............................................................................................................................................................................................

8

 

 

 

      Note 2 – Accounting Pronouncements Adopted and Critical Accounting Policies and Estimates  ..........................................................................................

9

 

 

 

      Note 3 – Revenue from Contracts with Customers  ................................................................................................................................................................

14

 

 

 

      Note 4 – Segment Data  ..........................................................................................................................................................................................................

15

 

 

 

      Note 5 - Debt  .........................................................................................................................................................................................................................

16

 

 

 

      Note 6 – Redeemable Noncontrolling Interests  ......................................................................................................................................................................

18

 

 

 

      Note 7 – Comprehensive Income  ...........................................................................................................................................................................................

19

 

 

 

      Note 8 – Fair Value Measurements  ........................................................................................................................................................................................

21

 

 

 

      Note 9 – Business Acquisitions and Planned Divestiture  ......................................................................................................................................................

24

 

 

 

      Note 10 – Plans of Restructuring  ...........................................................................................................................................................................................

26

 

 

 

      Note 11 – Earnings Per Share  ................................................................................................................................................................................................

27

 

 

 

      Note 12 – Income Taxes  ........................................................................................................................................................................................................

27

 

 

 

      Note 13 – Derivatives and Hedging Activities  .......................................................................................................................................................................

29

 

 

 

      Note 14 – Stock-Based Compensation  ...................................................................................................................................................................................

29

 

 

 

      Note 15 – Supplemental Cash Flow Information  ...................................................................................................................................................................

31

 

 

 

      Note 16 – Legal Proceedings  .................................................................................................................................................................................................

32

 

 

 

 

 

 

 

ITEM 2.

 

Management's Discussion and Analysis of  

 

 

 

 

Financial Condition and Results of Operations  ....................................................................................................................................................................

36

 

 

 

 

 

 

 

ITEM 3.

 

Quantitative and Qualitative Disclosures About Market Risk  ..................................................................................................................................................

65

 

 

 

 

 

 

 

ITEM 4.

 

Controls and Procedures  ...............................................................................................................................................................................................................

66

 

 

 

 

 

 

 

PART II.  OTHER INFORMATION

 

 

 

 

 

 

 

ITEM 1.

 

Legal Proceedings  ...........................................................................................................................................................................................................................

67

 

 

 

 

 

 

 

ITEM 1A.

 

Risk Factors  ....................................................................................................................................................................................................................................

71

 

 

 

 

 

 

 

ITEM 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds.....................................................................................................................................................

71

 

 

 

 

 

 

 

 

 

 

 

ITEM 6.

 

Exhibits  ...........................................................................................................................................................................................................................................

72

 

 

 

 

 

 

 

 

 

Signature  .........................................................................................................................................................................................................................................

73

 

 

   
               

 

 
 

 

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

HENRY SCHEIN, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

 

 

 

 

 

September 29,

 

December 30,

 

 

 

 

 

2018

 

2017

 

 

 

 

 

(unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents ..............................................................................................................................................................  

 

$

119,740

 

$

174,658

 

Accounts receivable, net of reserves of $55,289 and $53,832.................................................................................................................  

 

 

1,627,640

 

 

1,522,807

 

Inventories, net .............................................................................................................................................................................  

 

 

1,932,855

 

 

1,933,803

 

Prepaid expenses and other .............................................................................................................................................................  

 

 

513,717

 

 

454,752

 

 

 

Total current assets ................................................................................................................................................................  

 

 

4,193,952

 

 

4,086,020

Property and equipment, net ................................................................................................................................................................  

 

 

374,051

 

 

375,001

Goodwill ..........................................................................................................................................................................................  

 

 

2,685,681

 

 

2,301,331

Other intangibles, net ..........................................................................................................................................................................  

 

 

618,201

 

 

669,641

Investments and other ........................................................................................................................................................................  

 

 

518,425

 

 

432,002

 

 

 

Total assets ..........................................................................................................................................................................  

 

$

8,390,310

 

$

7,863,995

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable ..........................................................................................................................................................................  

 

$

1,136,120

 

$

1,153,012

 

Bank credit lines ............................................................................................................................................................................  

 

 

1,144,881

 

 

741,653

 

Current maturities of long-term debt .................................................................................................................................................  

 

 

12,482

 

 

16,659

 

Accrued expenses:

 

 

 

 

 

 

 

 

Payroll and related .....................................................................................................................................................................  

 

 

259,180

 

 

272,998

 

 

Taxes ......................................................................................................................................................................................  

 

 

180,163

 

 

188,873

 

 

Other .......................................................................................................................................................................................  

 

 

496,959

 

 

455,780

 

 

 

Total current liabilities ............................................................................................................................................................  

 

 

3,229,785

 

 

2,828,975

Long-term debt .................................................................................................................................................................................  

 

 

1,000,315

 

 

907,756

Deferred income taxes ........................................................................................................................................................................  

 

 

45,947

 

 

50,431

Other liabilities ..................................................................................................................................................................................  

 

 

415,045

 

 

420,285

 

 

 

Total liabilities ......................................................................................................................................................................  

 

 

4,691,092

 

 

4,207,447

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests .....................................................................................................................................................  

 

 

282,502

 

 

832,138

Commitments and contingencies ..........................................................................................................................................................  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

Preferred stock, $.01 par value, 1,000,000 shares authorized,

 

 

 

 

 

 

 

 

none outstanding .......................................................................................................................................................................  

 

 

-

 

 

-

 

Common stock, $.01 par value, 480,000,000 shares authorized,

 

 

 

 

 

 

 

 

152,437,680 outstanding on September 29, 2018 and 240,000,000 shares

 

 

 

 

 

 

 

 

authorized, 153,690,146 outstanding on December 30, 2017.............................................................................................................  

 

 

1,524

 

 

1,537

 

Retained earnings ..........................................................................................................................................................................  

 

 

3,191,260

 

 

2,940,029

 

Accumulated other comprehensive loss .............................................................................................................................................  

 

 

(219,649)

 

 

(130,067)

 

 

Total Henry Schein, Inc. stockholders' equity ..................................................................................................................................  

 

 

2,973,135

 

 

2,811,499

 

Noncontrolling interests ..................................................................................................................................................................  

 

 

443,581

 

 

12,911

 

 

 

Total stockholders' equity .......................................................................................................................................................  

 

 

3,416,716

 

 

2,824,410

 

 

Total liabilities, redeemable noncontrolling interests and stockholders' equity........................................................................................  

 

$

8,390,310

 

$

7,863,995

See accompanying notes.

 

3

 

 

HENRY SCHEIN, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

(unaudited)

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

 

 

September 29,

 

September 30,

 

September 29,

 

September 30,

 

 

 

 

 

2018

 

2017

 

2018

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales ....................................................................................................................................................................................  

 

$

3,279,678

 

$

3,161,083

 

$

9,826,793

 

$

9,143,489

Cost of sales ...............................................................................................................................................................................  

 

 

2,391,118

 

 

2,325,029

 

 

7,141,569

 

 

6,645,342

 

 

Gross profit ............................................................................................................................................................................  

 

 

888,560

 

 

836,054

 

 

2,685,224

 

 

2,498,147

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative ................................................................................................................................................  

 

 

668,011

 

 

622,506

 

 

2,027,138

 

 

1,874,644

 

Litigation settlements .................................................................................................................................................................  

 

 

38,488

 

 

-

 

 

38,488

 

 

5,325

 

Transaction costs related to Animal Health spin-off.........................................................................................................................  

 

 

7,282

 

 

-

 

 

18,670

 

 

-

 

Restructuring costs .....................................................................................................................................................................  

 

 

8,853

 

 

-

 

 

27,511

 

 

-

 

 

Operating income ...................................................................................................................................................................  

 

 

165,926

 

 

213,548

 

 

573,417

 

 

618,178

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income .........................................................................................................................................................................  

 

 

5,163

 

 

4,793

 

 

15,429

 

 

13,204

 

Interest expense ........................................................................................................................................................................  

 

 

(21,045)

 

 

(13,428)

 

 

(56,466)

 

 

(37,056)

 

Other, net .................................................................................................................................................................................  

 

 

(346)

 

 

(194)

 

 

(802)

 

 

489

 

 

Income before taxes and equity in earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

of affiliates .........................................................................................................................................................................  

 

 

149,698

 

 

204,719

 

 

531,578

 

 

594,815

Income taxes ..............................................................................................................................................................................  

 

 

(29,401)

 

 

(59,340)

 

 

(124,084)

 

 

(156,276)

Equity in earnings of affiliates ........................................................................................................................................................  

 

 

6,679

 

 

5,569

 

 

15,622

 

 

12,244

Net income .................................................................................................................................................................................  

 

 

126,976

 

 

150,948

 

 

423,116

 

 

450,783

 

Less: Net income attributable to noncontrolling interests ...................................................................................................................  

 

 

(5,498)

 

 

(12,917)

 

 

(20,208)

 

 

(35,949)

Net income attributable to Henry Schein, Inc. ...................................................................................................................................  

 

$

121,478

 

$

138,031

 

$

402,908

 

$

414,834

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share attributable to Henry Schein, Inc.:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic .......................................................................................................................................................................................  

 

$

0.80

 

$

0.88

 

$

2.63

 

$

2.64

 

Diluted ....................................................................................................................................................................................  

 

$

0.79

 

$

0.87

 

$

2.62

 

$

2.61

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic .......................................................................................................................................................................................  

 

 

152,533

 

 

156,914

 

 

152,970

 

 

157,386

 

Diluted ....................................................................................................................................................................................  

 

 

153,614

 

 

158,271

 

 

153,982

 

 

158,866

See accompanying notes.

 

4

 

 

HENRY SCHEIN, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

 

September 29,

 

September 30,

 

September 29,

 

September 30,

 

 

 

 

 

2018

 

2017

 

2018

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income .................................................................................................................................................................................  

 

$

126,976

 

$

150,948

 

$

423,116

 

$

450,783

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation gain (loss)...........................................................................................................................................  

 

 

(10,582)

 

 

58,916

 

 

(106,154)

 

 

173,166

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) from foreign currency hedging

 

 

 

 

 

 

 

 

 

 

 

 

 

 

activities ................................................................................................................................................................................  

 

 

(379)

 

 

(34)

 

 

674

 

 

(1,274)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized investment loss ...........................................................................................................................................................  

 

 

(1)

 

 

(2)

 

 

(2)

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension adjustment gain (loss)......................................................................................................................................................  

 

 

116

 

 

(353)

 

 

1,056

 

 

(1,063)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax  ..................................................................................................................................  

 

 

(10,846)

 

 

58,527

 

 

(104,426)

 

 

170,827

Comprehensive income .................................................................................................................................................................  

 

 

116,130

 

 

209,475

 

 

318,690

 

 

621,610

 

Comprehensive income attributable to noncontrolling

 

 

 

 

 

 

 

 

 

 

 

 

 

  interests:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income ............................................................................................................................................................................  

 

 

(5,498)

 

 

(12,917)

 

 

(20,208)

 

 

(35,949)

 

 

Foreign currency translation (gain) loss.........................................................................................................................................  

 

 

2,589

 

 

(3,473)

 

 

14,844

 

 

(8,258)

 

 

 

Comprehensive income attributable to noncontrolling

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  interests .............................................................................................................................................................................  

 

 

(2,909)

 

 

(16,390)

 

 

(5,364)

 

 

(44,207)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to Henry Schein, Inc. ...................................................................................................................  

 

$

113,221

 

$

193,085

 

$

313,326

 

$

577,403

See accompanying notes.

 

5

 

 

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 30, 2017 ...............................................................................................................................................................  

 

153,690,146

 

$

1,537

 

$

-

 

$

2,940,029

 

$

(130,067)

 

$

12,911

 

$

2,824,410

Cumulative impact of adopting new accounting standards (Note 2)...........................................................................................................................  

 

-

 

 

-

 

 

-

 

 

2,594

 

 

-

 

 

-

 

 

2,594

Net income (excluding $17,019 attributable to Redeemable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests) ..............................................................................................................................................................  

 

-

 

 

-

 

 

-

 

 

402,908

 

 

-

 

 

3,189

 

 

406,097

Foreign currency translation loss (excluding loss of $13,752

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

attributable to Redeemable noncontrolling interests) ...................................................................................................................................  

 

-

 

 

-

 

 

-

 

 

-

 

 

(91,310)

 

 

(1,092)

 

 

(92,402)

Unrealized gain from foreign currency hedging activities,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

net of tax of $405.....................................................................................................................................................................  

 

-

 

 

-

 

 

-

 

 

-

 

 

674

 

 

-

 

 

674

Unrealized investment loss, net of tax of $0................................................................................................................................................  

 

-

 

 

-

 

 

-

 

 

-

 

 

(2)

 

 

-

 

 

(2)

Pension adjustment gain, including tax of $393.............................................................................................................................................  

 

-

 

 

-

 

 

-

 

 

-

 

 

1,056

 

 

-

 

 

1,056

Dividends paid ...........................................................................................................................................................................  

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(396)

 

 

(396)

Other adjustments ........................................................................................................................................................................  

 

-

 

 

-

 

 

(11)

 

 

-

 

 

-

 

 

712

 

 

701

Purchase of noncontrolling interests.......................................................................................................................................................  

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(207)

 

 

(207)

Change in fair value of redeemable securities ...............................................................................................................................................  

 

-

 

 

-

 

 

(119,695)

 

 

-

 

 

-

 

 

-

 

 

(119,695)

Initial noncontrolling interests and adjustments related to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

business acquisitions.................................................................................................................................................................  

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

428,464

 

 

428,464

Repurchase and retirement of common stock ...............................................................................................................................................  

 

(1,521,208)

 

 

(15)

 

 

(20,865)

 

 

(93,226)

 

 

-

 

 

-

 

 

(114,106)

Stock issued upon exercise of stock options ...............................................................................................................................................  

 

153,516

 

 

1

 

 

3,075

 

 

-

 

 

-

 

 

-

 

 

3,076

Stock-based compensation expense ........................................................................................................................................................  

 

379,428

 

 

4

 

 

34,231

 

 

-

 

 

-

 

 

-

 

 

34,235

Shares withheld for payroll taxes ..........................................................................................................................................................  

 

(267,573)

 

 

(3)

 

 

(18,107)

 

 

-

 

 

-

 

 

-

 

 

(18,110)

Settlement of stock-based compensation awards ............................................................................................................................................  

 

3,371

 

 

-

 

 

(642)

 

 

-

 

 

-

 

 

-

 

 

(642)

Deferred tax benefit arising from acquisition of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interest in partnership..................................................................................................................................................  

 

-

 

 

-

 

 

60,969

 

 

-

 

 

-

 

 

-

 

 

60,969

Transfer of charges in excess of capital......................................................................................................................................................  

 

-

 

 

-

 

 

61,045

 

 

(61,045)

 

 

-

 

 

-

 

 

-

Balance, September 29, 2018 ..............................................................................................................................................................  

 

152,437,680

 

$

1,524

 

$

-

 

$

3,191,260

 

$

(219,649)

 

$

443,581

 

$

3,416,716

See accompanying notes.

 

6

 

 

HENRY SCHEIN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

  

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

September 29,

 

September 30,

 

 

 

 

 

 

2018

 

2017

 

 

 

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income .......................................................................................................................................................................................  

 

$

423,116

 

$

450,783

 

Adjustments to reconcile net income to net cash provided by

 

 

 

 

 

 

 

 

operating activities:

 

 

 

 

 

 

 

 

 

Depreciation and amortization .....................................................................................................................................................  

 

 

155,089

 

 

141,278

 

 

 

Stock-based compensation expense ..............................................................................................................................................  

 

 

34,235

 

 

31,987

 

 

 

Provision for losses on trade and other accounts receivable ...............................................................................................................  

 

 

7,870

 

 

6,981

 

 

 

Provision for (benefit from) deferred income taxes ..........................................................................................................................  

 

 

(6,282)

 

 

8,600

 

 

 

Equity in earnings of affiliates .....................................................................................................................................................  

 

 

(15,622)

 

 

(12,244)

 

 

 

Distributions from equity affiliates ................................................................................................................................................  

 

 

15,534

 

 

16,826

 

 

 

Changes in unrecognized tax benefits ............................................................................................................................................  

 

 

2,853

 

 

(6,653)

 

 

 

Other .......................................................................................................................................................................................  

 

 

590

 

 

6,031

 

 

 

Changes in operating assets and liabilities, net of acquisitions:

 

 

 

 

 

 

 

 

 

 

Accounts receivable ...............................................................................................................................................................  

 

 

(155,579)

 

 

(226,577)

 

 

 

 

Inventories ...........................................................................................................................................................................  

 

 

(35,300)

 

 

27,336

 

 

 

 

Other current assets ................................................................................................................................................................  

 

 

(81,774)

 

 

(70,833)

 

 

 

 

Accounts payable and accrued expenses ...................................................................................................................................  

 

 

46,024

 

 

(66,014)

Net cash provided by operating activities ...............................................................................................................................................  

 

 

390,754

 

 

307,501

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of fixed assets ....................................................................................................................................................................  

 

 

(61,826)

 

 

(55,315)

 

Payments for equity investments and business

 

 

 

 

 

 

 

 

acquisitions, net of cash acquired .....................................................................................................................................................  

 

 

(47,325)

 

 

(258,786)

 

Other ...............................................................................................................................................................................................  

 

 

(37,206)

 

 

(6,694)

Net cash used in investing activities .......................................................................................................................................................  

 

 

(146,357)

 

 

(320,795)

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from bank borrowings ...........................................................................................................................................................  

 

 

404,098

 

 

193,550

 

Proceeds from issuance of long-term debt ..............................................................................................................................................  

 

 

115,000

 

 

200,440

 

Principal payments for long-term debt ...................................................................................................................................................  

 

 

(27,621)

 

 

(59,531)

 

Debt issuance costs ............................................................................................................................................................................  

 

 

(395)

 

 

(1,771)

 

Proceeds from issuance of stock upon exercise of stock options .................................................................................................................  

 

 

3,076

 

 

4,941

 

Payments for repurchases of common stock ..........................................................................................................................................  

 

 

(114,106)

 

 

(225,005)

 

Payments for taxes related to shares withheld for employee taxes...............................................................................................................  

 

 

(17,903)

 

 

(44,721)

 

Distributions to noncontrolling stockholders ............................................................................................................................................  

 

 

(15,767)

 

 

(23,921)

 

Acquisitions of noncontrolling interests in subsidiaries ..............................................................................................................................  

 

 

(664,898)

 

 

(27,914)

Net cash provided by (used in) financing activities ...................................................................................................................................  

 

 

(318,516)

 

 

16,068

 

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents ..................................................................................................................  

 

 

19,201

 

 

14,724

Net change in cash and cash equivalents ................................................................................................................................................  

 

 

(54,918)

 

 

17,498

Cash and cash equivalents, beginning of period .......................................................................................................................................  

 

 

174,658

 

 

62,381

Cash and cash equivalents, end of period ...............................................................................................................................................  

 

$

119,740

 

$

79,879

See accompanying notes.

 

7

 

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.

 

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 30, 2017.

 

The preparation of financial statements in conformity with U.S. GAAP 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 29, 2018 are not necessarily indicative of the results to be expected for any other interim period or for the year ending December 29, 2018.

 

On August 16, 2017, we announced that our Board of Directors approved a 2-for-1 split of our common stock. Each Henry Schein, Inc. stockholder of record at the close of business on September 1, 2017 received a dividend of one additional share for every share held.  Trading began on a split-adjusted basis on September 15, 2017 and has been retroactively reflected for all periods presented in this Form 10-Q.  As a result of the stock split, we increased our authorized common shares from 240,000,000 to 480,000,000, effective May 31, 2018.

  

8

 
 

HENRY SCHEIN, INC. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited 

 

Note 2 – Accounting Pronouncements Adopted and Critical Accounting Policies and Estimates

 

Accounting Pronouncements Adopted

 

InMay 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers”, Accounting Standards Codification (“ASC”) 606 (“Topic 606”).  We adopted the provisions of this standard as of December 31, 2017, on a modified retrospective basis.  We applied the requirements of the new standard only to contracts that were not completed as of the adoption date. We recorded an immaterial adjustment to the opening balance of retained earnings for the adoption of Topic 606. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

 

The impact of the new standard on our consolidated statements of income, which we expect to be immaterial on an ongoing basis, is primarily related to software sales and sales commissions and is described as follows:

 

Software Sales

 

For software licenses sold together with post contract support (PCS), we previously deferred software revenue if it did not have vendor-specific evidence of fair value of the PCS.  Under Topic 606, the concept of vendor-specific objective evidence is eliminated and there are no cases where revenue is deferred due to a lack of standalone selling price.  In addition, we previously recognized revenue from term licenses ratably over the contract term.  Under Topic 606, such licenses represent a right to use intellectual property and therefore require upfront recognition.  Furthermore, certain upfront fees related to service arrangements were previously deferred and recognized over the estimated customer life.  Under Topic 606, the period over which we will recognize these fees is reduced, as the upfront fee represents additional contract price which will be allocated to the performance obligations in the contract and recognized as those performance obligations are satisfied, rather than being amortized over the estimated customer life. Based on the aforementioned changes, such software revenue will be recognized sooner than under the previous revenue recognition standard.

 

Sales Commissions 

 

We previously recognized sales commissions as an expense when incurred.  Under Topic 606, we defer such sales commissions as costs to obtain a contract when the costs are incremental and expected to be recovered.  Deferred sales commissions are amortized over the estimated customer relationship period.  We apply the practical expedient to expense, as incurred, commissions with an expected amortization period of one year or less. 

 

 

 

9

 
 

HENRY SCHEIN, INC. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited 

 

The impact of adoption on our consolidated balance sheet and income statement was as follows:

 

 

 

As of

 

September 29, 2018

 

 

 

 

 

 

Balances

 

 

 

Effect of

 

 

As

 

 

 

Without Adoption

 

 

 

Change

Balance Sheet

 

 

Reported

 

 

 

of Topic 606

 

 

 

Increase/(Decrease)

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Prepaid expenses and other ........................................................................................................................................  

 

$

513,717

 

 

$