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

June 25, 2022

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 July 25, 2022,

there were

136,114,744

 shares of the registrant’s common stock outstanding.

HENRY SCHEIN, INC.

INDEX

Page

3

4

5

6

7

8

9

9

10

11

12

13

15

17

19

20

21

24

24

26

26

27

27

28

43

43

44

44

44

44

45

46

See accompanying notes.

3

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

HENRY SCHEIN, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share data)

June 25,

December 25,

2022

2021

(unaudited)

ASSETS

Current assets:

Cash and cash equivalents 

$

108

$

118

Accounts receivable, net of reserves of $

63

 and $

67

1,409

1,452

Inventories, net

1,823

1,861

Prepaid expenses and other 

449

413

Total current assets 

3,789

3,844

Property and equipment, net 

356

366

Operating lease right-of-use assets

327

325

Goodwill 

2,833

2,854

Other intangibles, net 

603

668

Investments and other

416

424

Total assets 

$

8,324

$

8,481

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable 

$

901

$

1,054

Bank credit lines 

85

51

Current maturities of long-term debt 

4

11

Operating lease liabilities

74

76

Accrued expenses:

Payroll and related 

328

385

Taxes 

124

137

Other 

560

593

Total current liabilities 

2,076

2,307

Long-term debt 

769

811

Deferred income taxes 

33

42

Operating lease liabilities

276

268

Other liabilities 

357

377

Total liabilities 

3,511

3,805

Redeemable noncontrolling interests 

586

613

Commitments and contingencies 

(nil)

(nil)

Stockholders' equity:

Preferred stock, $

0.01

 par value,

1,000,000

 shares authorized,

none

 outstanding

-

-

Common stock, $

0.01

 par value,

480,000,000

 shares authorized,

136,439,560

 outstanding on June 25, 2022 and

137,145,558

 outstanding on December 25, 2021

1

1

Additional paid-in capital

-

-

Retained earnings 

3,834

3,595

Accumulated other comprehensive loss 

(241)

(171)

Total Henry Schein, Inc. stockholders' equity

3,594

3,425

Noncontrolling interests

633

638

Total stockholders' equity 

4,227

4,063

Total liabilities, redeemable noncontrolling interests and stockholders' equity

$

8,324

$

8,481

See accompanying notes.

4

HENRY SCHEIN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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

Three Months Ended

Six Months Ended

June 25,

June 26,

June 25,

June 26,

2022

2021

2022

2021

Net sales 

$

3,030

$

2,967

$

6,209

$

5,892

Cost of sales 

2,085

2,076

4,291

4,110

Gross profit 

945

891

1,918

1,782

Operating expenses:

Selling, general and administrative 

680

635

1,362

1,249

Depreciation and amortization

45

45

92

89

Restructuring costs

-

1

-

4

Operating income

220

210

464

440

Other income (expense):

Interest income 

3

1

5

3

Interest expense 

(9)

(7)

(16)

(13)

Other, net 

-

1

-

1

Income before taxes, equity in earnings of affiliates

and noncontrolling interests

214

205

453

431

Income taxes

(52)

(47)

(109)

(104)

Equity in earnings of affiliates 

5

6

9

12

Net income

167

164

353

339

Less: Net income attributable to noncontrolling interests

(7)

(8)

(12)

(17)

Net income attributable to Henry Schein, Inc.

$

160

$

156

$

341

$

322

Earnings per share attributable to Henry Schein, Inc.:

Basic 

$

1.17

$

1.11

$

2.49

$

2.28

Diluted 

$

1.16

$

1.10

$

2.46

$

2.26

Weighted-average common shares outstanding:

Basic 

137,350,488

140,358,428

137,323,076

141,316,258

Diluted 

138,869,064

141,656,883

139,055,205

142,537,906

See accompanying notes.

5

HENRY SCHEIN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited, in millions)

Three Months Ended

Six Months Ended

June 25,

June 26,

June 25,

June 26,

2022

2021

2022

2021

Net income

$

167

$

164

$

353

$

339

Other comprehensive income (loss), net of tax:

Foreign currency translation gain (loss)

(90)

38

(87)

-

Unrealized gain (loss) from foreign currency hedging

activities 

8

(2)

9

1

Pension adjustment gain

-

-

-

1

Other comprehensive income (loss), net of tax 

(82)

36

(78)

2

Comprehensive income 

85

200

275

341

Comprehensive income attributable to noncontrolling

 interests: 

Net income

(7)

(8)

(12)

(17)

Foreign currency translation (gain) loss

9

(7)

8

(1)

Comprehensive (income) loss attributable to noncontrolling

interests 

2

(15)

(4)

(18)

Comprehensive income attributable to Henry Schein, Inc. 

$

87

$

185

$

271

$

323

See accompanying notes.

6

HENRY SCHEIN, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN 

STOCKHOLDERS’ EQUITY

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

Accumulated

Common Stock

Additional

Other

Total

$0.01 Par Value

Paid-in

Retained

Comprehensive

Noncontrolling

Stockholders'

Shares

Amount

Capital

Earnings

Income / (Loss)

 Interests

Equity

Balance, March 26, 2022

137,708,809

$

1

$

-

$

3,759

$

(168)

$

632

$

4,224

Net income (excluding $

5

 attributable to Redeemable

noncontrolling interests)

-

-

-

160

-

2

162

Foreign currency translation loss (excluding loss of $

8

attributable to Redeemable noncontrolling interests)

-

-

-

-

(81)

(1)

(82)

Unrealized gain from foreign currency hedging activities,

net of tax of $

2

-

-

-

-

8

-

8

Change in fair value of redeemable securities

-

-

10

-

-

-

10

Repurchase and retirement of common stock

(1,345,397)

-

(16)

(94)

-

-

(110)

Stock-based compensation expense

78,738

-

15

-

-

-

15

Stock issued upon exercise of stock options

3,594

-

-

-

-

-

-

Shares withheld for payroll taxes

(6,016)

-

(1)

-

-

-

(1)

Settlement of stock-based compensation awards

(168)

-

1

-

-

-

1

Transfer of charges in excess of capital

-

-

(9)

9

-

-

-

Balance, June 25, 2022

136,439,560

$

1

$

-

$

3,834

$

(241)

$

633

$

4,227

Accumulated

Common Stock

Additional

Other

Total

$0.01 Par Value

Paid-in

Retained

Comprehensive

Noncontrolling

Stockholders'

Shares

Amount

Capital

Earnings

Income / (Loss)

 Interests

Equity

Balance, March 27, 2021

141,310,113

$

1

$

-

$

3,493

$

(136)

$

639

$

3,997

Net income (excluding $

7

 attributable to Redeemable

noncontrolling interests)

-

-

-

156

-

1

157

Foreign currency translation gain (excluding gain of $

7

attributable to Redeemable noncontrolling interests)

-

-

-

-

31

-

31

Unrealized loss from foreign currency hedging activities,

net of tax of $

0

-

-

-

-

(2)

-

(2)

Change in fair value of redeemable securities

-

-

(87)

-

-

-

(87)

Initial noncontrolling interests and adjustments related to

business acquisitions

-

-

-

-

-

6

6

Repurchase and retirement of common stock

(1,542,315)

-

(15)

(97)

-

-

(112)

Stock-based compensation expense

-

-

17

-

-

-

17

Stock issued upon exercise of stock options

17,916

-

-

-

-

-

-

Shares withheld for payroll taxes

(4,873)

-

-

-

-

-

-

Settlement of stock-based compensation awards

-

-

(1)

-

-

-

(1)

Transfer of charges in excess of capital

-

-

86

(86)

-

-

-

Balance, June 26, 2021

139,780,841

$

1

$

-

$

3,466

$

(107)

$

646

$

4,006

See accompanying notes.

7

HENRY SCHEIN, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN 

STOCKHOLDERS' EQUITY

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

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 25, 2021

137,145,558

$

1

$

-

$

3,595

$

(171)

$

638

$

4,063

Net income (excluding $

9

 attributable to Redeemable

noncontrolling interests) 

-

-

-

341

-

3

344

Foreign currency translation loss (excluding loss of $

7

attributable to Redeemable noncontrolling interests)

-

-

-

-

(79)

(1)

(80)

Unrealized gain from foreign currency hedging activities,

net of tax of $

3

-

-

-

-

9

-

9

Purchase of noncontrolling interests

-

-

-

-

-

(7)

(7)

Change in fair value of redeemable securities 

-

-

7

-

-

-

7

Repurchase and retirement of common stock 

(1,345,397)

-

(16)

(94)

-

-

(110)

Stock-based compensation expense

954,899

-

27

-

-

-

27

Stock issued upon exercise of stock options 

29,827

-

2

-

-

-

2

Shares withheld for payroll taxes 

(342,347)

-

(29)

-

-

-

(29)

Settlement of stock-based compensation awards

(2,980)

-

1

-

-

-

1

Transfer of charges in excess of capital

-

-

8

(8)

-

-

-

Balance, June 25, 2022

136,439,560

$

1

$

-

$

3,834

$

(241)

$

633

$

4,227

Accumulated

Common Stock

Additional

Other

Total

$0.01 Par Value

Paid-in

Retained

Comprehensive

Noncontrolling

Stockholders'

Shares

Amount

Capital

Earnings

Income / (Loss)

 Interests

Equity

Balance, December 26, 2020

142,462,571

$

1

$

-

$

3,455

$

(108)

$

636

$

3,984

Net income (excluding $

14

 attributable to Redeemable

noncontrolling interests) 

-

-

-

322

-

3

325

Foreign currency translation loss (excluding gain of $

1

attributable to Redeemable noncontrolling interests)

-

-

-

-

(1)

-

(1)

Unrealized gain from foreign currency hedging activities,

net of tax of $

1

-

-

-

-

1

-

1

Pension adjustment gain, net of tax of $

0

-

-

-

-

1

-

1

Change in fair value of redeemable securities 

-

-

(133)

-

-

-

(133)

Initial noncontrolling interests and adjustments related to

business acquisitions

-

-

-

-

-

7

7

Repurchase and retirement of common stock 

(2,867,557)

-

(27)

(174)

-

-

(201)

Stock-based compensation expense

299,561

-

30

-

-

-

30

Shares withheld for payroll taxes 

(113,734)

-

(7)

-

-

-

(7)

Transfer of charges in excess of capital

-

-

137

(137)

-

-

-

Balance, June 26, 2021

139,780,841

$

1

$

-

$

3,466

$

(107)

$

646

$

4,006

See accompanying notes.

8

HENRY SCHEIN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in millions)

Six Months Ended

June 25,

June 26,

2022

2021

Cash flows from operating activities:

Net income 

$

353

$

339

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

Depreciation and amortization 

108

99

Stock-based compensation expense

27

30

Benefit from losses on trade and other accounts receivable 

-

(4)

Provision for (benefit from) deferred income taxes

(15)

6

Equity in earnings of affiliates

(9)

(12)

Distributions from equity affiliates 

10

11

Changes in unrecognized tax benefits 

(1)

(6)

Other 

(13)

3

Changes in operating assets and liabilities, net of acquisitions:

Accounts receivable 

21

102

Inventories 

4

(124)

Other current assets 

(37)

(86)

Accounts payable and accrued expenses 

(198)

(136)

Net cash provided by operating activities

250

222

Cash flows from investing activities:

Purchases of fixed assets 

(43)

(32)

Payments related to equity investments and business

acquisitions, net of cash acquired 

(7)

(296)

Proceeds from (payments for) loan to affiliate

6

(2)

Other 

(15)

(11)

Net cash used in investing activities 

(59)

(341)

Cash flows from financing activities:

Net change in bank borrowings 

30

(5)

Proceeds from issuance of long-term debt 

-

200

Principal payments for long-term debt 

(57)

(120)

Proceeds from issuance of stock upon exercise of stock options 

2

-

Payments for repurchases and retirement of common stock 

(110)

(201)

Payments for taxes related to shares withheld for employee taxes

(29)

(8)

Distributions to noncontrolling shareholders

(12)

(4)

Acquisitions of noncontrolling interests in subsidiaries 

(19)

(1)

Net cash used in financing activities

(195)

(139)

Effect of exchange rate changes on cash and cash equivalents

(6)

4

Net change in cash and cash equivalents

(10)

(254)

Cash and cash equivalents, beginning of period 

118

421

Cash and cash equivalents, end of period 

$

108

$

167

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 (unaudited

)

9

Note 1 – Basis of Presentation

Our condensed consolidated financial statements include the accounts of Henry Schein, Inc. and all of our

controlled subsidiaries (“we”, “us” or “our”). All intercompany accounts and transactions are eliminated in

consolidation. Investments in unconsolidated affiliates in which we have the ability to influence the operating or

financial decisions are accounted for under the equity method. Certain prior period amounts have been reclassified

to conform to the current period presentation.

Our accompanying unaudited condensed consolidated financial statements have been prepared in accordance with

accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and

with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the

information and footnote disclosures required by U.S. GAAP for complete financial statements.

The unaudited interim condensed consolidated financial statements should be read in conjunction with the audited

consolidated financial statements and notes to the consolidated financial statements contained in our Annual Report

on Form 10-K for the year ended December 25, 2021 and with the information contained in our other publicly-

available filings with the Securities and Exchange Commission. The condensed consolidated financial statements

reflect all adjustments considered necessary for a fair presentation of the consolidated results of operations and

financial position for the interim periods presented. All such adjustments are of a normal recurring nature. 

The preparation of financial statements in conformity with accounting principles generally accepted in the United

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

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

revenues and expenses during the reporting period. Actual results could differ from those estimates. The results of

operations for the six months ended June 25, 2022 are not necessarily indicative of the results to be expected for

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

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

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

direct activities that most significantly affect the economic performance and have the obligation to absorb the

majority of the losses or benefits. For this VIE, the trade accounts receivable transferred to the VIE are pledged as

collateral to the related debt. The creditors have recourse to us for losses on these trade accounts receivable. At

June 25, 2022 and December 25, 2021, certain trade accounts receivable that can only be used to settle obligations

of this VIE were $

76

 million and $

138

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

recourse to us were $

60

 million and $

105

 million, respectively.

Our condensed consolidated financial statements reflect estimates and assumptions made by us that affect, among

other things, our goodwill, long-lived asset and definite-lived intangible asset valuation; inventory valuation; equity

investment valuation; assessment of the annual effective tax rate; valuation of deferred income taxes and income

tax contingencies; the allowance for doubtful accounts; hedging activity; supplier rebates; measurement of

compensation cost for certain share-based performance awards and cash bonus plans; and pension plan

assumptions. Due to the significant uncertainty surrounding the future impact of COVID-19, our judgments

regarding estimates and impairments could change in the future. 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

.

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 (unaudited

)

10

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 six months ended June 25, 2022,

as compared to the critical accounting policies described in Item 7 of our Annual Report on Form 10-K for the year

ended December 25, 2021.

Accounting Pronouncements Adopted

On

December 26, 2021

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

Contract Assets and Contract Liabilities from Contracts with Customers” (Subtopic 805), as early adoption of this

ASU was permitted. ASU 2021 – 08 requires an acquirer to recognize and measure contract assets and contract

liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer

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

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

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

contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s

financial statements. Our

adoption

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

statements.

Recently Issued Accounting Standards

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

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

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

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

reference rate expected to be discontinued because of reference rate reform. The guidance was effective beginning

March 12, 2020 and can be applied prospectively through December 31, 2022. In January 2021, the FASB issued

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

optional expedients and exceptions to certain guidance in U.S. GAAP to ease the financial reporting burdens related

to the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such

as the Secured Overnight Financing Rate. The guidance is effective upon issuance, on January 7, 2021, and can be

applied through December 31, 2022. We do not expect that the requirements of this guidance will have a material

impact on our consolidated financial statements.

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

Portfolio Layer Method,” which will expand companies' abilities to hedge the benchmark interest rate risk of

portfolios of financial assets (or beneficial interests) in a fair value hedge. This ASU expands the use of the

portfolio layer method (previously referred to as the last-of-layer method) to allow multiple hedges of a single

closed portfolio of assets using spot starting, forward starting and amortizing-notional swaps. It also permits both

prepayable and non-prepayable financial assets to be included in the closed portfolio of assets hedged in a portfolio

layer hedge. This ASU further requires that basis adjustments not be allocated to individual assets for active

portfolio layer method hedges, but rather be maintained on the closed portfolio of assets as a whole. ASU 2022 –

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

years. Early adoption is permitted for any entity that has adopted the amendments in ASU 2017-12. We do not

expect that the requirements of this guidance will have a material impact on our consolidated financial statements.

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

Debt Restructuring and Vintage Disclosures”. The amendments in this ASU eliminate the accounting guidance for

troubled debt restructurings by creditors that have adopted the Current Expected Credit Losses model and enhance

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 (unaudited

)

11

the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial

difficulty. In addition, the amendments require a public business entity to disclose current-period gross write-offs

for financing receivables and net investment in leases by year of origination in the vintage disclosures. ASU 2022

– 02 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal

years. Early adoption is permitted for any entity that has adopted the amendments in ASU No. 2016-13, “Financial

Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. We do not

expect that the requirements of this guidance will have a material impact on our consolidated financial statements.

Note 3 – Revenue from Contracts with Customers

Revenue is recognized in accordance with policies disclosed in Item 8 of our Annual Report on Form 10-K for

the year ended December 25, 2021.

Disaggregation of Net Sales

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

Three Months Ended 

Six Months Ended

June 25, 2022

June 25, 2022

North

America

International

Global

North

America

International

Global

Net Sales:

Health care distribution 

Dental 

$

1,124

$

729

$

1,853

$

2,229

$

1,452

$

3,681

Medical 

977

19

996

2,127

41

2,168

Total health care distribution

2,101

748

2,849

4,356

1,493

5,849

Technology and value-added services 

158

23

181

314

46

360

Total revenues

$

2,259

$

771

$

3,030

$

4,670

$

1,539

$

6,209

Three Months Ended 

Six Months Ended

June 26, 2021

June 26, 2021

North

America

International

Global

North

America

International

Global

Net Sales:

Health care distribution 

Dental 

$

1,129

$

783

$

1,912

$

2,174

$

1,527

$

3,701

Medical 

875

27

902

1,838

55

1,893

Total health care distribution

2,004

810

2,814

4,012

1,582

5,594

Technology and value-added services 

131

22

153

255

43

298

Total revenues

$

2,135

$

832

$

2,967

$

4,267

$

1,625

$

5,892

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

89

 million was reported in Accrued expenses:

Other, and $

10

 million related to non-current contract liabilities was reported in Other liabilities. During the six

months ended June 25, 2022, we recognized in net sales $

56

 million of the amounts that were previously deferred at

December 25, 2021. At June 25, 2022, the current and non-current portion of contract liabilities were $

87

 million

and $

9

 million, respectively.

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 (unaudited

)

12

Note 4

 –

Segment Data

We conduct our business through

two

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

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

dental businesses serve office-based dental practitioners, dental laboratories, schools and other institutions. Our

global medical businesses serve office-based medical practitioners, ambulatory surgery centers, other alternate-care

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

32

 countries worldwide.

The health care distribution reportable segment aggregates our global dental and medical operating segments. This

segment distributes consumable products, dental specialty products, small equipment, laboratory products, large

equipment, equipment repair services, branded and generic pharmaceuticals, vaccines, surgical products, diagnostic

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

Our global technology and value-added services reportable segment provides software, technology and other value-

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

for dental and medical practitioners. Our value-added practice solutions include practice consultancy, education,

revenue cycle management and financial services on a non-recourse basis, e-services, practice technology, network

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

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

Three Months Ended

Six Months Ended

June 25,

June 26,

June 25,

June 26,

2022

2021

2022

2021

Net Sales:

Health care distribution 

Dental 

$

1,853

$

1,912

$

3,681

$

3,701

Medical 

996

902

2,168

1,893

Total health care distribution

2,849

2,814

5,849

5,594

Technology and value-added services 

181

153

360

298

Total 

$

3,030

$

2,967

$

6,209

$

5,892

Three Months Ended

Six Months Ended

June 25,

June 26,

June 25,

June 26,

2022

2021

2022

2021

Operating Income:

Health care distribution 

$

189

$

182

$

400

$

379

Technology and value-added services 

31

28

64

61

Total

$

220

$

210

$

464

$

440

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 (unaudited

)

13

Note 5

 –

Business Acquisitions

2022 Acquisitions

During the six months ended June 25, 2022, we made several acquisitions within the technology and value-added

services segments. The impact of these acquisitions was not considered material to our condensed consolidated

financial statements.

2021 Acquisitions

We completed several acquisitions during the six months ended June 26, 2021 which were immaterial to our

financial statements. Our acquired ownership interest ranged between approximately

51

% to

100

%. Acquisitions

within our health care distribution segment included companies that specialize in distribution of dental products, a

provider of home medical supplies, and product kitting and sterile packaging. Within our technology and value-

added services segment, we acquired companies that focus on dental marketing and website solutions, practice

transition services, and business analytics and intelligence software.

The following table aggregates the estimated fair value, as of the date of acquisition, of consideration paid and net

assets acquired for acquisitions during the six months ended June 26, 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 condensed consolidated balance sheets.

Acquisition consideration:

Cash

$

303

Deferred consideration

8

Redeemable noncontrolling interests

129

Total consideration

$

440

Identifiable assets acquired and liabilities assumed:

Current assets

107

Intangible assets

184

Other noncurrent assets

34

Current liabilities

(44)

Deferred income taxes

(17)

Other noncurrent liabilities

(37)

Total identifiable net assets

227

Goodwill

213

Total net assets acquired

$

440

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 (unaudited

)

14

The following table summarizes the identifiable intangible assets acquired during the six months ended June 26,

2021 and their estimated useful lives as of the date of the acquisition:

Estimated

Useful Lives

(in years)

Customer relationships and lists

$

124

5

-

12

Trademark / Tradename

33

5

-

7

Non-compete agreements

6

5

Product development

21

5

-

7

Total

$

184

The major classes of assets and liabilities that we generally allocate purchase price to, excluding goodwill, include

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

development and non-compete agreements), inventory and accounts receivable, property, plant and equipment,

deferred taxes and other current and long-term assets and liabilities. The estimated fair value of identifiable

intangible assets is based on critical estimates, judgments and assumptions derived from analysis of market

conditions, discount rates, discounted cash flows, customer retention rates and estimated useful lives.

Some prior owners of acquired subsidiaries are eligible to receive additional purchase price cash consideration if

certain financial targets are met. We have accrued liabilities for the estimated fair value of additional purchase

price consideration at the time of the acquisition. Any adjustments to these accrual amounts are recorded in our

condensed consolidated statements of income. For the six months ended June 25, 2022 and June 26, 2021, there

were no material adjustments recorded in our condensed consolidated statements of income relating to changes in

estimated contingent purchase price liabilities.

During the six months ended June 25, 2022 and June 26, 2021 we incurred $

3

 million and $

4

 million, respectively,

in acquisition costs.

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 (unaudited

)

15

Note 6 – Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly

transaction between market participants at the measurement date. The fair value hierarchy distinguishes between

(1) market participant assumptions developed based on market data obtained from independent sources (observable

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

information available in the circumstances (unobservable inputs).

The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices

in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). 

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

• Level 1— Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible at the

measurement date.

• Level 2— Inputs other than quoted prices included within Level 1 that are observable for the asset or liability,

either directly or indirectly. Level 2 inputs include: quoted prices for similar assets or liabilities in active markets;

quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted

prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by

observable market data by correlation or other means.

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

The following section describes the fair values of our financial instruments and the methodologies that we used to

measure their fair values.

Investments and notes receivable

There are no quoted market prices available for investments in unconsolidated affiliates and notes receivable;

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

applicable markets.

Debt

The fair value of our debt (including bank credit lines) is classified as Level 3 within the fair value hierarchy, and

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

858

 million and $

873

 million, respectively. Factors

that we considered when estimating the fair value of our debt included market conditions, such as interest rates and

credit spreads.

Derivative contracts

Derivative contracts are valued using quoted market prices and significant other observable inputs. We use

derivative instruments to minimize our exposure to fluctuations in foreign currency exchange rates. Our derivative

instruments primarily include foreign currency forward agreements related to certain intercompany loans, certain

forecasted inventory purchase commitments with foreign suppliers, foreign currency forward contracts to hedge a

portion of our euro-denominated foreign operations which are designated as net investment hedges and a total

return swap for the purpose of economically hedging our unfunded non-qualified supplemental executive retirement

plan and our deferred compensation plan.

The fair values for the majority of our foreign currency derivative contracts are obtained by comparing our contract

rate to a published forward price of the underlying market rates, which is based on market rates for comparable

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

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 (unaudited

)

16

Redeemable noncontrolling interests

The values for Redeemable noncontrolling interests are classified within Level 3 of the fair value hierarchy and are

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

for additional information.

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 June 25, 2022 and December 25, 2021:

June 25, 2022

Level 1

Level 2

Level 3

Total

Assets:

Derivative contracts designated as hedges

$

-

$

23

$

-

$

23

Derivative contracts undesignated

-

2

-

2

Total assets 

$

-

$

25

$

-

$

25

Liabilities:

Derivative contracts designated as hedges

$

-

$

1

$

-

$

1

Derivative contracts undesignated

-

5

-

5

Total return swaps

-

5

-

5

Total liabilities 

$

-

$

11

$

-

$

11

Redeemable noncontrolling interests 

$

-

$

-

$

586

$

586

December 25, 2021

Level 1

Level 2

Level 3

Total

Assets:

Derivative contracts designated as hedges

$

-

$

8

$

-

$

8

Derivative contracts undesignated

-

1

-

1

Total return swaps

-

1

-

1

Total assets 

$

-

$

10

$

-

$

10

Liabilities:

Derivative contracts designated as hedges

$

-

$

1

$

-

$

1

Derivative contracts undesignated

-

2

-

2

Total liabilities 

$

-

$

3

$

-

$

3

Redeemable noncontrolling interests 

$

-

$

-

$

613

$

613

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 (unaudited

)

17

Note 7 – Debt

Bank Credit Lines

Bank credit lines consisted of the following:

June 25,

December 25,

2022

2021

Revolving credit agreement

$

-

$

-

Other short-term bank credit lines

85

51

Total 

$

85

$

51

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. Most LIBOR rates have been discontinued after December 31, 2021,

while the remaining LIBOR rates will be discontinued immediately after June 30, 2023. We do not expect the

discontinuation of LIBOR as a reference rate in our debt agreements to have a material adverse effect on our

financial position or to materially affect our interest expense. The Credit Agreement 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 June 25, 2022 and December 25, 2021, we had

no

 borrowings under this

revolving credit facility. As of June 25, 2022 and December 25, 2021, there were $

9

 million and $

9

 million of

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

Other Short-Term Bank Credit Lines

As of June 25, 2022 and December 25, 2021, we had various other short-term bank credit lines available, of which

$

85

 million and $

51

 million, respectively, were outstanding. At June 25, 2022 and December 25, 2021, borrowings

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

9.90

% and

10.44

%, respectively.

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 (unaudited

)

18

Long-term debt

Long-term debt consisted of the following:

June 25,

December 25,

2022

2021

Private placement facilities 

$

699

$

706

U.S. trade accounts receivable securitization

60

105

Various collateralized and uncollateralized loans payable with interest,

in varying installments through 2023 at interest rates

ranging from

0.00

% to

3.50

% at June 25, 2022 and 

ranging from

2.62

% to

4.27

% at December 25, 2021

7

4

Finance lease obligations

7

7

Total 

773

822

Less current maturities 

(4)

(11)

Total long-term debt 

$

769

$

811

Private Placement Facilities

Our private placement facilities were amended on

October 20, 2021

 to include

four

 (previously

three

) insurance

companies, have a total facility amount of $

1.5

 billion (previously $

1.0

 billion), and are available on an

uncommitted basis at fixed rate economic terms to be agreed upon at the time of issuance, from time to time

through

October 20, 2026

 (previously

June 23, 2023

). The facilities allow us to issue senior promissory notes to

the lenders at a fixed rate based on an agreed upon spread over applicable treasury notes at the time of

issuance. The term of each possible issuance will be selected by us and can range from

five

 to

15 years

 (with an

average life no longer than

12 years

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

corporate purposes, including working capital and capital expenditures, to refinance existing indebtedness, and/or

to fund potential acquisitions. The agreements provide, among other things, that we maintain certain maximum

leverage ratios, and contain restrictions relating to subsidiary indebtedness, liens, affiliate transactions, disposal of

assets and certain changes in ownership. These facilities contain make-whole provisions in the event that we pay

off the facilities prior to the applicable due dates.

The components of our private placement facility borrowings as of June 25, 2022 are presented in the following

table:

Amount of

Borrowing

Borrowing 

Date of Borrowing

Outstanding

Rate

Due Date

January 20, 2012

$

50

3.45

%

January 20, 2024

December 24, 2012

50

3.00

December 24, 2024

June 16, 2017

100

3.42

June 16, 2027

September 15, 2017

100

3.52

September 15, 2029

January 2, 2018

100

3.32

January 2, 2028

September 2, 2020

100

2.35

September 2, 2030

June 2, 2021

100

2.48

June 2, 2031

June 2, 2021

100

2.58

June 2, 2033

Less: Deferred debt issuance costs

(1)

Total

$

699

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 (unaudited

)

19

U.S. Trade Accounts Receivable Securitization

We have a facility agreement based on the securitization of our U.S. trade accounts receivable that is structured as

an asset-backed securitization program with pricing committed for up to

three years

. Our current facility, which

had a purchase limit of $

350

 million, was scheduled to expire on

April 29, 2022

. On October 20, 2021, we

amended our U.S. trade accounts receivable securitization facility to increase the purchase limit to $

450

 million

with

two

 banks as agents and extend the expiration date to

October 18, 2024

. As of June 25, 2022 and December

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

60

 million and $

105

 million,

respectively. At June 25, 2022, the interest rate on borrowings under this facility was based on the asset-backed

commercial paper rate of

1.43

% plus

0.75

%, for a combined rate of

2.18

%. At December 25, 2021, the interest rate

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

0.19

% plus

0.75

%, for a

combined rate of

0.94

%.

If our accounts receivable collection pattern changes due to customers either paying late or not making payments,

our ability to borrow under this facility may be reduced.

We are required to pay a commitment fee of

30

 to

35

 basis points depending upon program utilization.

Note 8 – Income Taxes

For the six months ended June 25, 2022 our effective tax rate was

23.9

% compared to

24.3

% for the prior year

period. The difference between our effective tax rate and the federal statutory tax rate for the six months ended

June 25, 2022 primarily relates to state and foreign income taxes and interest expense as well as share-based

compensation. The difference between our effective tax rate and the federal statutory tax rate for the six months

ended June 26, 2021 primarily relates to state and foreign income taxes, interest expense and tax charges and

credits associated with legal entity reorganizations.

The total amount of unrecognized tax benefits, which are included in “Other liabilities” within our condensed

consolidated balance sheets, as of June 25, 2022 and December 25, 2021 was $

83

 million and $

84

 million,

respectively of which $

69

 million and $

69

 million, respectively, would affect the effective tax rate if recognized. It

is possible that the amount of unrecognized tax benefits will change in the next 12 months, which may result in a

material impact on our condensed consolidated statements of income.

All tax returns audited by the IRS are officially closed through 2016. The tax years subject to examination by the

IRS include years 2017 and forward. During the quarter ended December 25, 2021, we were notified by the IRS

that tax year 2019 was selected for examination.

During the quarter ended September 26, 2020 we reached an agreement with the Advanced Pricing Division on an

appropriate transfer pricing methodology for the years 2014-2025. The objective of this resolution was to mitigate

future transfer pricing audit adjustments.

The total amounts of interest and penalties are classified as a component of the provision for income taxes. The

amount of tax interest expense/(credit) was $

0

 million for the six months ended June 25, 2022, and $

(3)

 million for

the six months ended June 26, 2021. The total amount of accrued interest is included in “Other liabilities,” and was

$

13

 million as of June 25, 2022 and $

12

 million as of December 25, 2021. 

No

 penalties were accrued for the

periods presented.

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 (unaudited

)

20

Note 9 – Legal Proceedings

Henry Schein, Inc. has been named as a defendant in multiple lawsuits (currently less than one-hundred and fifty

(