UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-Q

(Mark One)

☒

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

OF 1934

For the

quarterly

 period ended

September 24, 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 October 24, 2022,

there were

135,547,575

 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

27

28

28

29

46

46

47

47

47

48

49

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)

September 24,

December 25,

2022

2021

(unaudited)

ASSETS

Current assets:

Cash and cash equivalents 

$

123

$

118

Accounts receivable, net of reserves of $

63

 and $

67

1,507

1,452

Inventories, net

1,818

1,861

Prepaid expenses and other 

509

413

Total current assets 

3,957

3,844

Property and equipment, net 

354

366

Operating lease right-of-use assets

319

325

Goodwill 

2,870

2,854

Other intangibles, net 

635

668

Investments and other

399

424

Total assets 

$

8,534

$

8,481

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable 

$

957

$

1,054

Bank credit lines 

107

51

Current maturities of long-term debt 

4

11

Operating lease liabilities

72

76

Accrued expenses:

Payroll and related 

330

385

Taxes 

127

137

Other 

549

593

Total current liabilities 

2,146

2,307

Long-term debt 

934

811

Deferred income taxes 

37

42

Operating lease liabilities

271

268

Other liabilities 

338

377

Total liabilities 

3,726

3,805

Redeemable noncontrolling interests 

563

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,

135,258,887

 outstanding on September 24, 2022 and

137,145,558

 outstanding on December 25, 2021

1

1

Additional paid-in capital

-

-

Retained earnings 

3,922

3,595

Accumulated other comprehensive loss 

(312)

(171)

Total Henry Schein, Inc. stockholders' equity

3,611

3,425

Noncontrolling interests

634

638

Total stockholders' equity 

4,245

4,063

Total liabilities, redeemable noncontrolling interests and stockholders' equity

$

8,534

$

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

Nine Months Ended

September 24,

September 25,

September 24,

September 25,

2022

2021

2022

2021

Net sales 

$

3,067

$

3,178

$

9,276

$

9,070

Cost of sales 

2,153

2,266

6,444

6,376

Gross profit 

914

912

2,832

2,694

Operating expenses:

Selling, general and administrative 

648

657

2,010

1,906

Depreciation and amortization

45

44

137

133

Restructuring and integration costs

10

-

10

4

Operating income

211

211

675

651

Other income (expense):

Interest income 

4

2

9

5

Interest expense 

(11)

(7)

(27)

(20)

Other, net 

1

-

1

1

Income before taxes, equity in earnings of affiliates

and noncontrolling interests

205

206

658

637

Income taxes

(46)

(50)

(155)

(154)

Equity in earnings of affiliates 

3

6

12

18

Gain on sale of equity investment

-

7

-

7

Net income

162

169

515

508

Less: Net income attributable to noncontrolling interests

(12)

(7)

(24)

(24)

Net income attributable to Henry Schein, Inc.

$

150

$

162

$

491

$

484

Earnings per share attributable to Henry Schein, Inc.:

Basic 

$

1.10

$

1.16

$

3.59

$

3.44

Diluted 

$

1.09

$

1.15

$

3.55

$

3.40

Weighted-average common shares outstanding:

Basic 

135,608,678

139,377,237

136,731,413

140,661,182

Diluted 

137,084,049

141,079,337

138,488,254

142,178,702

See accompanying notes.

5

HENRY SCHEIN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited, in millions)

Three Months Ended

Nine Months Ended

September 24,

September 25,

September 24,

September 25,

2022

2021

2022

2021

Net income

$

162

$

169

$

515

$

508

Other comprehensive loss, net of tax:

Foreign currency translation loss

(89)

(40)

(176)

(40)

Unrealized gain from foreign currency hedging

activities 

11

4

20

5

Pension adjustment gain

1

-

1

1

Other comprehensive loss, net of tax

(77)

(36)

(155)

(34)

Comprehensive income 

85

133

360

474

Comprehensive income attributable to noncontrolling

 interests: 

Net income

(12)

(7)

(24)

(24)

Foreign currency translation loss

6

5

14

4

Comprehensive income attributable to noncontrolling

interests 

(6)

(2)

(10)

(20)

Comprehensive income attributable to Henry Schein, Inc. 

$

79

$

131

$

350

$

454

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, June 25, 2022

136,439,560

$

1

$

-

$

3,834

$

(241)

$

633

$

4,227

Net income (excluding $

10

 attributable to Redeemable

noncontrolling interests)

-

-

-

150

-

2

152

Foreign currency translation loss (excluding loss of $

6

attributable to Redeemable noncontrolling interests)

-

-

-

-

(83)

-

(83)

Unrealized gain from foreign currency hedging activities,

net of tax of $

4

-

-

-

-

11

-

11

Pension adjustment gain, net of tax of $

1

-

-

-

-

1

-

1

Dividends paid

-

-

-

-

-

(1)

(1)

Change in fair value of redeemable securities

-

-

11

-

-

-

11

Repurchases and retirement of common stock

(1,183,729)

-

(12)

(78)

-

-

(90)

Stock-based compensation expense

3,640

-

17

-

-

-

17

Stock issued upon exercise of stock options

597

-

-

-

-

-

-

Shares withheld for payroll taxes

(1,194)

-

(1)

-

-

-

(1)

Settlement of stock-based compensation awards

13

-

1

-

-

-

1

Transfer of charges in excess of capital

-

-

(16)

16

-

-

-

Balance, September 24, 2022

135,258,887

$

1

$

-

$

3,922

$

(312)

$

634

$

4,245

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, June 26, 2021

139,780,841

$

1

$

-

$

3,466

$

(107)

$

646

$

4,006

Net income (excluding $

5

 attributable to Redeemable

noncontrolling interests)

-

-

-

162

-

2

164

Foreign currency translation loss (excluding loss of $

5

attributable to Redeemable noncontrolling interests)

-

-

-

-

(35)

-

(35)

Unrealized gain from foreign currency hedging activities,

net of tax of $

1

-

-

-

-

4

-

4

Change in fair value of redeemable securities

-

-

(11)

-

-

-

(11)

Repurchases and retirement of common stock

(651,289)

-

(7)

(43)

-

-

(50)

Stock-based compensation expense

11

-

28

-

-

-

28

Shares withheld for payroll taxes

(20)

-

-

-

-

-

-

Transfer of charges in excess of capital

-

-

(10)

10

-

-

-

Balance, September 25, 2021

139,129,543

$

1

$

-

$

3,595

$

(138)

$

648

$

4,106

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 $

19

 attributable to Redeemable

noncontrolling interests) 

-

-

-

491

-

5

496

Foreign currency translation loss (excluding loss of $

13

attributable to Redeemable noncontrolling interests)

-

-

-

-

(162)

(1)

(163)

Unrealized gain from foreign currency hedging activities,

net of tax of $

7

-

-

-

-

20

-

20

Pension adjustment gain, net of tax of $

1

-

-

-

-

1

-

1

Dividends paid 

-

-

-

-

-

(1)

(1)

Purchase of noncontrolling interests

-

-

-

-

-

(7)

(7)

Change in fair value of redeemable securities 

-

-

18

-

-

-

18

Repurchases and retirement of common stock 

(2,529,126)

-

(28)

(172)

-

-

(200)

Stock-based compensation expense

958,539

-

44

-

-

-

44

Stock issued upon exercise of stock options 

30,424

-

2

-

-

-

2

Shares withheld for payroll taxes 

(343,541)

-

(30)

-

-

-

(30)

Settlement of stock-based compensation awards

(2,967)

-

2

-

-

-

2

Transfer of charges in excess of capital

-

-

(8)

8

-

-

-

Balance, September 24, 2022

135,258,887

$

1

$

-

$

3,922

$

(312)

$

634

$

4,245

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 $

19

 attributable to Redeemable

noncontrolling interests) 

-

-

-

484

-

5

489

Foreign currency translation loss (excluding loss of $

4

attributable to Redeemable noncontrolling interests)

-

-

-

-

(36)

-

(36)

Unrealized gain from foreign currency hedging activities,

net of tax of $

2

-

-

-

-

5

-

5

Pension adjustment gain, net of tax of $

0

-

-

-

-

1

-

1

Change in fair value of redeemable securities 

-

-

(144)

-

-

-

(144)

Initial noncontrolling interests and adjustments related to

business acquisitions

-

-

-

-

-

7

7

Repurchases and retirement of common stock 

(3,518,846)

-

(34)

(217)

-

-

(251)

Stock-based compensation expense

299,572

-

58

-

-

-

58

Shares withheld for payroll taxes 

(113,754)

-

(7)

-

-

-

(7)

Transfer of charges in excess of capital

-

-

127

(127)

-

-

-

Balance, September 25, 2021

139,129,543

$

1

$

-

$

3,595

$

(138)

$

648

$

4,106

See accompanying notes.

8

HENRY SCHEIN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in millions)

Nine Months Ended

September 24,

September 25,

2022

2021

Cash flows from operating activities:

Net income 

$

515

$

508

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

Depreciation and amortization 

160

151

Gain on sale of equity investment

-

(10)

Stock-based compensation expense

44

58

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

2

(9)

Benefit from deferred income taxes

(20)

(1)

Equity in earnings of affiliates

(12)

(18)

Distributions from equity affiliates 

12

15

Changes in unrecognized tax benefits 

1

(6)

Other 

(25)

-

Changes in operating assets and liabilities, net of acquisitions:

Accounts receivable 

(93)

(83)

Inventories 

(9)

(208)

Other current assets 

(96)

(41)

Accounts payable and accrued expenses 

(131)

77

Net cash provided by operating activities

348

433

Cash flows from investing activities:

Purchases of fixed assets 

(67)

(49)

Payments related to equity investments and business

acquisitions, net of cash acquired 

(127)

(415)

Proceeds from sale of equity investments

-

10

Proceeds from (payments for) loan to affiliate

9

(6)

Other 

(26)

(19)

Net cash used in investing activities 

(211)

(479)

Cash flows from financing activities:

Net change in bank borrowings 

51

(13)

Proceeds from issuance of long-term debt 

165

200

Principal payments for long-term debt 

(58)

(122)

Debt issuance costs

-

(2)

Proceeds from issuance of stock upon exercise of stock options 

2

-

Payments for repurchases and retirement of common stock 

(200)

(251)

Payments for taxes related to shares withheld for employee taxes

(30)

(7)

Distributions to noncontrolling shareholders

(18)

(9)

Acquisitions of noncontrolling interests in subsidiaries 

(33)

(50)

Net cash used in financing activities

(121)

(254)

Effect of exchange rate changes on cash and cash equivalents

(11)

(2)

Net change in cash and cash equivalents

5

(302)

Cash and cash equivalents, beginning of period 

118

421

Cash and cash equivalents, end of period 

$

123

$

119

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 nine months ended September 24, 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

September 24, 2022 and December 25, 2021, certain trade accounts receivable that can only be used to settle

obligations of this VIE were $

313

 million and $

138

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

creditors have recourse to us were $

225

 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 nine months ended September

24, 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). 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.

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 (unaudited

)

11

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 

Nine Months Ended

September 24, 2022

September 24, 2022

North

America

International

Global

North

America

International

Global

Net Sales:

Health care distribution 

Dental 

$

1,131

$

654

$

1,785

$

3,360

$

2,106

$

5,466

Medical 

1,088

18

1,106

3,215

59

3,274

Total health care distribution

2,219

672

2,891

6,575

2,165

8,740

Technology and value-added services 

155

21

176

469

67

536

Total revenues

$

2,374

$

693

$

3,067

$

7,044

$

2,232

$

9,276

Three Months Ended 

Nine Months Ended

September 25, 2021

September 25, 2021

North

America

International

Global

North

America

International

Global

Net Sales:

Health care distribution 

Dental 

$

1,115

$

708

$

1,823

$

3,289

$

2,235

$

5,524

Medical 

1,162

23

1,185

3,000

78

3,078

Total health care distribution

2,277

731

3,008

6,289

2,313

8,602

Technology and value-added services 

149

21

170

404

64

468

Total revenues

$

2,426

$

752

$

3,178

$

6,693

$

2,377

$

9,070

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 nine

months ended September 24, 2022, we recognized in net sales $

70

 million of the amounts that were previously

deferred at December 25, 2021. At September 24, 2022, the current and non-current portion of contract liabilities

were $

76

 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

Nine Months Ended

September 24,

September 25,

September 24,

September 25,

2022

2021

2022

2021

Net Sales:

Health care distribution 

Dental 

$

1,785

$

1,823

$

5,466

$

5,524

Medical 

1,106

1,185

3,274

3,078

Total health care distribution

2,891

3,008

8,740

8,602

Technology and value-added services 

176

170

536

468

Total 

$

3,067

$

3,178

$

9,276

$

9,070

Three Months Ended

Nine Months Ended

September 24,

September 25,

September 24,

September 25,

2022

2021

2022

2021

Operating Income:

Health care distribution 

$

179

$

179

$

579

$

558

Technology and value-added services 

32

32

96

93

Total

$

211

$

211

$

675

$

651

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

We completed several acquisitions during the nine months ended September 24, 2022, which were immaterial to

our condensed consolidated financial statements. Our acquired ownership interest ranged between

80

% to

100

%. 

Acquisitions within our healthcare distribution segment included companies that specialize in the distribution of

dental products. Within our technology and value-added services segment, we acquired a company that educates

and connects dental office managers, practice administrators and dental business leaders across North America.

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 nine months ended September 24, 2022. 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. 

Approximately half of the acquired goodwill is deductible for tax purposes.

2022

Acquisition consideration:

Cash

$

132

Deferred consideration

1

Fair value of previously held equity method investment

16

Redeemable noncontrolling interests

4

Total consideration

$

153

Identifiable assets acquired and liabilities assumed:

Current assets

36

Intangible assets

70

Other noncurrent assets

7

Current liabilities

(23)

Deferred income taxes

(5)

Other noncurrent liabilities

(5)

Total identifiable net assets

80

Goodwill

73

Total net assets acquired

$

153

The following table summarizes the identifiable intangible assets acquired during the nine months ended September

24, 2022 and their estimated useful lives as of the date of the acquisition:

2022

Estimated Useful Lives (in years)

Customer relationships and lists

$

56

10

Trademarks/ Tradenames

10

5

Non-compete agreements

2

2

-

5

Other

2

10

Total

$

70

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 (unaudited

)

14

2021 Acquisitions

We completed several acquisitions during the nine months ended September 25, 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 the distribution and

manufacturing of dental and medical 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 nine months ended September 25, 2021. While we use our best

estimates and assumptions to accurately value those assets acquired and liabilities assumed at the acquisition date

as well as contingent consideration, where applicable, our estimates are inherently uncertain and subject to

refinement. As a result, during the measurement period we may record adjustments to the assets acquired and

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

Approximately half of the acquired goodwill is deductible for tax purposes.

2021

Acquisition consideration:

Cash

$

424

Deferred consideration

11

Fair value of previously held equity method investment

8

Redeemable noncontrolling interests

179

Total consideration

$

622

Identifiable assets acquired and liabilities assumed:

Current assets

159

Intangible assets

259

Other noncurrent assets

39

Current liabilities

(62)

Deferred income taxes

(18)

Other noncurrent liabilities

(39)

Total identifiable net assets

338

Goodwill

284

Total net assets acquired

$

622

The following table summarizes the identifiable intangible assets acquired during the nine months ended September

25, 2021 and their estimated useful lives as of the date of the acquisition:

2021

Estimated Useful Lives (in years)

Customer relationships and lists

$

175

6

-

12

Trademarks / Tradenames

42

5

-

10

Non-compete agreements

6

5

Product development

21

5

-

10

Other

15

18

Total

$

259

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,

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 (unaudited

)

15

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 nine months ended September 24, 2022 and September 25,

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 nine months ended September 24, 2022 and September 25, 2021 we incurred $

6

 million and $

6

 million,

respectively, in acquisition costs.

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 September 24, 2022 and December 25, 2021 was estimated at $

1,045

 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.

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 (unaudited

)

16

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.

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 September 24, 2022 and December 25,

2021:

September 24, 2022

Level 1

Level 2

Level 3

Total

Assets:

Derivative contracts designated as hedges

$

-

$

40

$

-

$

40

Derivative contracts undesignated

-

4

-

4

Total assets 

$

-

$

44

$

-

$

44

Liabilities:

Derivative contracts designated as hedges

$

-

$

3

$

-

$

3

Derivative contracts undesignated

-

7

-

7

Total return swaps

-

7

-

7

Total liabilities 

$

-

$

17

$

-

$

17

Redeemable noncontrolling interests 

$

-

$

-

$

563

$

563

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:

September 24,

December 25,

2022

2021

Revolving credit agreement

$

-

$

-

Other short-term bank credit lines